Amazon (AMZN +2.02%) has dominated the e-commerce industry for decades, with almost 50% market share in the U.S. However, some retail competitors are now catching up by using physical store locations to better their online offerings. Smart management teams are taking advantage of inventory at brick-and-mortar locations to improve shipping times and the overall e-commerce experience for consumers. Target (TGT 1.73%), American Eagle Outfitters (AEO 0.52%), and lululemon athletica (LULU 1.57%) are three stocks ready to thrive in this omnichannel future.
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1. Target
From 2011 to 2018, Target's stock went nowhere. So did its sales and profits. However, since CEO Brian Cornell took the helm in May of 2018, the company's prospects have started to change course. It began with remodeling many of Target's 1,897 store locations to optimize for delivery, in-store pickup, and customer experience. Remodels and continual investments in a nationwide fulfillment network allow Target to offer more customers same-day delivery through its Shipt platform, improving the online experience for shoppers. It also has improved the shopping experience on Target.com, which now offers curbside pickup and delivery, something even Amazon cannot offer.
But what about the financials? Well, lately they have been fantastic. For the 2020 holiday season, overall digital sales grew 100% year over year, with same-day services growing a whopping 193%. Plus, the company announced that it gained market share in all five of its retail categories, meaning that its business grew faster than the overall industry.
2. American Eagle Outfitters
American Eagle Outfitters (AEO) is smaller and more niche than a big-box retailer like Target, but it is employing a similar strategy to use existing stores to its advantage. AEO has more than 1,000 owned stores across its American Eagle and Aerie brands, which it is using to offer same-day pickup for online ordering and the ability to reserve or buy something online and then try it on in the store. As a clothing retailer focused on younger demographics, allowing flexibility when shopping online is crucial for a pleasant customer experience. AEO's mobile app is also highly rated, which again is important when going after younger shoppers. Customers can reserve items through the app to pick up later, and see what inventory is available and at what stores. This information sounds immaterial, but it helps shoppers not waste time by going to a store and realizing the item they want is sold out. Lastly, AEO and Aerie have a combined 5 million followers on Instagram, which not only gives the company an efficient marketing tool but is another way for shoppers to buy items online.
Like Target, the proof is in the pudding with AEO's financials. While total revenue for the company decreased by 3% last quarter, digital sales grew 29% with Aerie digital sales growing 83%. So even with mall closures and government restrictions giving non-essential retailers like AEO a giant headwind in 2020, the company was able to grow its digital presence. Why? Because of the investments it made in e-commerce over the past few years.
3. lululemon athletica
Unlike Target and AEO, lululemon is not a turnaround story. In fact, the stock is one of the best performers of the last 10 years, up over 800% in that time frame. Its online capabilities have always been solid, but it is now trying to turn some of its retail locations into larger, experienced-based stores where shoppers could hang out for hours on end. For example, in 2019 lululemon opened a store in Chicago that offers workout classes, meditation rooms, merchandise, and a health-focused restaurant all under one roof. This is an early-stage initiative, and the concept might evolve over time, but if lululemon can get more customers into its stores for longer, it will likely sell more apparel. It also just bought the at-home fitness product Mirror for a reported $500 million. Selling and offering testing for the Mirror could again drive more customers to lululemon locations.
Overall, these retailers are making investments to optimize and improve their customer experience, which is how they can fight back against e-commerce giants like Amazon. Target, lululemon, and American Eagle Outfitters have taken the necessary steps to thrive in an omnichannel future.
