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Retailers Try to Find the Sweet Spot for Surviving in the Age of Amazon

By Rich Duprey - Jan 25, 2018 at 9:35PM

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While many are doing e-commerce right, some are doing it spectacularly wrong.

Traditional retailers have taken different paths in their quests to compete against ( AMZN 1.11% ). While some, like Kenneth Cole and bebe, went to the extreme of closing their bricks-and-mortar stores and becoming online-only outfits as a means of survival, others have collected a broad assortment of websites to give them an e-commerce platform.

Bed Bath & Beyond ( BBBY 3.49% ) is an example of that latter path, acquiring a hodgepodge of sites that mostly have no relationship to one another or to its core brand. It bought failed flash-sale site One Kings Lane, monogrammed-tchotchke seller, personalized home design service provider Decorist, and Of a Kind, an e-commerce website that features limited-edition items from various designers.

In between are the retailers that have acquired a few eclectic e-commerce platforms that may or may not be related to their business. While often they don't spend an exorbitant sum on the purchases, some spend significant amounts and have to write them off as they fail to work out as expected.

Smiling woman holding a credit card while sitting in front of a laptop and looking at shopping bags on the table.

Image source: Getty Images.

A costly lesson

Hudson's Bay Company -- a Canadian department store operator -- made a foray into flash-sale sites, buying Gilt Groupe for $250 million in 2015 only to have to write off $116 million a little over a year later, because of poor performance at the site and at its Off 5th outlet chain. Nordstrom ( JWN 0.76% ) purchased online personal styling service Trunk Club for $350 million in 2014, but late last year it wrote off $197 million worth of the acquisition price. Two years ago, footwear retailer DSW ( DBI 4.06% ) paid $62.5 million for online footwear marketplace operator Ebuys only to write off $52.7 million last November, an admission that it dramatically overpaid for the service.

While not every e-commerce buy goes awry -- Wal-Mart's acquisition of is paying dividends for the retail giant, as is its partnership with Chinese online operator -- for too many it's been a case of simply throwing money at a problem and hoping it would be a panacea for what ailed them.

In fairness, retailers were caught unawares by the severity of the downturn that gripped their industry. Few foresaw how sharply their businesses would deteriorate thanks to the onslaught of e-commerce that Amazon ushered in. With the number of bankruptcies that have plagued the industry the past few years, and the ones that are still to come, their panic-driven response is understandable -- but it's one they need to rethink.

Three friends looking at a computer screen perplexed, as one holds a credit card.

Image source: Getty Images.

Doing online right

To be sure, e-commerce represents an important growth channel for retailers that have a predominantly physical presence. Despite the failure of Trunk Club, third-quarter online sales for Nordstrom still grew 14% at its namesake website and 26% at its discount sites Nordstrom Rack and Haute Look. Similarly, DSW saw 26% growth in digital sales at its own website, while Bed Bath & Beyond achieved better than 20% growth.

And Home Depot ( HD 2.36% ) is another success story when it comes to integrating the online shopping experience. It is heavily reliant upon its bricks-and-mortar footprint, but finds that 60% of its sales, whether in-store or online, are influenced by a digital visit.

There are also plenty of examples where certain retailers are even able to eschew having much, if any, of an online presence. Off-price TJX has been able to withstand most of the trouble the rest of the industry has experienced even though its digital footprint is negligible. The dollar stores as well have largely sidestepped the issue.

Selective engagement

What this suggests is that to survive in today's retail environment, a retailer doesn't have to go all-in and become an online-only store, nor does it have to give consumers an amalgam of many websites to be able to say it, too, has an e-commerce site. Thoughtful integration of a Web strategy is key, and not simply throwing ideas at a whiteboard to see what sticks.

Retailers don't have to beat at its own game, because consumers do still by and large prefer to see and touch an item before purchase. That actually gives retailers with a physical presence a built-in advantage over the e-commerce giant. It's when they try to play by Amazon's rules that they get lost and fall into trouble.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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Stocks Mentioned

The Home Depot, Inc. Stock Quote
The Home Depot, Inc.
$410.08 (2.36%) $9.47, Inc. Stock Quote, Inc.
$3,545.90 (1.11%) $38.83
Wal-Mart Stores, Inc. Stock Quote
Wal-Mart Stores, Inc.
$140.23 (-0.28%) $0.40
Nordstrom, Inc. Stock Quote
Nordstrom, Inc.
$21.33 (0.76%) $0.16
The TJX Companies, Inc. Stock Quote
The TJX Companies, Inc.
$70.82 (2.05%) $1.42
Designer Brands Inc. Stock Quote
Designer Brands Inc.
$14.23 (4.06%) $0.56
Bed Bath & Beyond Inc. Stock Quote
Bed Bath & Beyond Inc.
$18.97 (3.49%) $0.64
Hudson's Bay Company Stock Quote
Hudson's Bay Company
HBC, Inc. Stock Quote, Inc.
$87.51 (4.04%) $3.40

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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