Over the 2016 holiday season, both Target (NYSE:TGT) and Wal-Mart (NYSE:WMT) have doubled down on the idea that people will place orders online and pick them up in store. Both are trying to improve the process with dedicated staff, but the question is how big demand will be aside from the holidays.
In this clip from Industry Focus: Consumer Goods, host Vincent Shen is joined by Motley Fool contributing writer Daniel Kline to dig into some of the facts behind this growing customer-service method. The two look at the opportunity and debate whether the idea has any merit outside of the holiday season.
A full transcript follows the video.
This podcast was recorded on Nov. 8, 2016.
Vince Shen: A somewhat related topic around in-store pickup, and how some of the more traditional big-box retailers are leveraging this, I want to touch on this, again, related to the growing popularity of this delivery method for customers.
About 20% of Americans, in a PwC survey, say they use in-store pickup on a regular basis, which really surprised me. About half of the survey respondents use in-store pickup occasionally. So some of these traditional big-box retailers -- think Wal-Mart, think Target-- they have to deal with a lot of the challenges of integrating ship-to-store, in-store pickup capabilities into their established retail layouts. So, thinking of, how you optimize your staffing, how you store your inventory, how you separate your work spaces. But I would argue that [Amazon.com] has an advantage here, in that they're building their stores around this concept.
Dan Kline: They are. The chief person for this is either the person who feels their product is going to get stolen if it's delivered to their door, or, in the case of where I've used pick-up in-store at Target, when my wife wanted to pick up the sheets at our vacation condo, but have me pick them up. So she ordered them in Connecticut; I picked them up in Florida, same day.
Now, what Target's doing to facilitate this is, they're going to have dedicated personnel, at least for the holiday season, devoted to doing this, because the problem with pickup in-store has been, it's a bit like when you go to Panera Bread and they have the Order Ahead, yet no two stores do it the same way, and you never know where your bagel is. So you walk into Target, and basically, you were a pioneer doing something that the person behind the counter didn't necessarily know the procedure for. Maybe it was in the layaway area, maybe it was in the set-aside area, maybe they had to go pick it off the store shelves. So absolutely, they have stepped up how they do this, but I do think it's something that -- the holiday season, it makes a lot of sense. You need things faster; you want gifts when you want them. If it's the hot TV, you want to make sure you have already ordered it so you don't go to the store and have it be out. But is there really a huge demand for this in August?
Shen: OK. So, you mentioned some of the potential top- and bottom-line impact. Jeremy Bowman, one of our Fool.com contributors, he has a really interesting piece on some of these developments that we've discussed at Amazon. He dug a little deeper into the numbers to estimate what the potential financial impact a 2,000-store network could have for the company. He uses some comparable metrics and numbers from leading grocery chain Kroger. The idea is, 2,000 locations, assuming about 30,000 square feet of retail space, and what Kroger can generate per square foot, currently, in sales -- it's about $40 billion of grocery revenue. So I think, in the last 12 months, Amazon has had about $120 billion in revenue. So that's significant. Granted, this would be over many, many years in order to get to that.
Kline: And what's the margin on that?
Shen: Exactly. That's, I think, the point that Jeremy really hits -- significant addition to the top line, but in terms of those razor-thin margins, think 2%-3% for the grocery industry overall. That's adding less than $1 billion to the bottom line while using those benchmark figures. So, you see, it is not going to be this huge profit driver for the company. But even if it doesn't scale to that thousands of locations, it's just part of [Jeff] Bezos' strategy to get Amazon to be a bigger and bigger part of your life.
Kline: The question comes down to, how can they leverage their user base? I'm a Prime member; so are about 25% of all Americans. If they can message to me and get me into that store, where perhaps I'm going to pick up my groceries, maybe I'm going to get a new Kindle, and maybe they can sign me up for an AWS account, all at the same time, while providing the ability to return without putting it in a box. If they can leverage all of those things, I see convenience. But that's not cheap. One of the reasons Amazon is cheaper is, they don't have the customer-service expense of a physical store, because it's all automated. If you want to do a return, you click "return" and it sends you a shipping label, and you send it back, and a robot puts it away. So I can see how it would work, but it does seem like a lot of effort for nothing. I would rather see 2,000 bookstores.