Traditional retailers have taken different paths in their quests to compete against Amazon.com (NASDAQ:AMZN). 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 (NASDAQ:BBBY) 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 PersonalizationMall.com, 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.
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 (NYSE:JWN) 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 (NYSE:DSW) 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 Jet.com is paying dividends for the retail giant, as is its partnership with Chinese online operator JD.com -- 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.
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 (NYSE:HD) 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.
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 Amazon.com 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.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Rich Duprey has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Amazon and JD.com. The Motley Fool has the following options: short May 2018 $175 calls on Home Depot and long January 2020 $110 calls on Home Depot. The Motley Fool recommends DSW, Home Depot, Nordstrom, and The TJX Companies. The Motley Fool has a disclosure policy.