It might be surprising to think of Amazon (AMZN -4.17%) as being vulnerable, especially on Flack Friday, but it is. This holiday season big box retailers are poking at the e-tailer's weak spots and bringing a big game to the competition for consumer dollars.
With price matching, shopping apps, improved online platforms, and ship-to-store service, Best Buy (BBY -1.09%), Target (TGT -0.73%), and Wal-Mart (WMT 0.30%) are better prepared than ever to steal Christmas away from Amazon.
It's a good time to try to catch Amazon off its game. The company is occupied with a lot of other businesses besides e-tail -- cloud, gadgets, streaming, content, etc. -- and fending off competitors Netflix, Apple, Google, and Barnes & Noble.
In the meantime, the big-box retailers have been readying the sled and trusty dog, Max, to take the presents from Amazon's tree. Here are the trends that are working in their favor.
Showrooming is for suckers
For years people have argued that the "showrooming" trend -- where customers go to bricks-and-mortar stores to try out a product and then purchase what they want online -- was going to be the last nail in Best Buy's coffin.
Now, it seems, the trend has been turned on its head. Working in Best Buy's favor is a new practice called "webrooming" -- going online to check prices and then buying in-store.
An Accenture Holiday Shopping survey released in October showed that more people plan to webroom (65%) than showroom (63%). Why? To avoid shipping costs (47%) and to be able to touch, see, and feel product before they buy (46%).
Webrooming is particularly popular with the coveted Millennial shopper. According to the Urban Land Institute, 50% of Millennials (ages 18-35) prefer to "webroom" for electronics compared to 11% who prefer to "showroom."
And now, thanks to more aggressive price matching policies, shoppers can be sure that once they get into the checkout line at the physical store they'll pay the same price for the item that they saw advertised elsewhere online.
Comparison shopping just got competitive
Even when accounting for free shipping, Amazon has been shown to be more expensive than the big box stores on some items. Now, thanks to more aggressive price matching policies from big retailers, Amazon can't even feel secure on items that it does offer for less.
Best Buy has had an permanent online price matching policy firmly in place since March. Target also made permanent its online price-matching policy introduced last holiday season. These policies offer yet another incentive for webroomers to shop in physical stores: immediate gratification.
Over a year ago analysts were decrying these price matching policies, arguing that Best Buy and Target 's willingness to price match would lead to margin contraction at best. Susan Lee of Simon-Kucher & Partners, a retail consulting firm, said last year, "Time, resources, and flexibility all work in Amazon's favor if Best Buy starts a retail price war in consumer electronics. This is a strategic mistake for Best Buy, from which it might never recover."
That turned out to be a bad call: Since last holiday season Best Buy's share price has risen 182.36%. Oops! Hard to believe but Best Buy is trading at a forward earnings multiple of 16 compared to Amazon's 130.81.
Black Friday behavior is changing
Last year, Amazon clocked in 306 items per second sold on Cyber Monday. Will it have a repeat run this year? Perhaps. But here the trend favors big box stores, too.
By Cyber Monday, Amazon's most important customers may be all shopped out. It turns out that Gen Y loves getting out of the house to see what the big retailers have on their shelves.
"Almost two thirds of Gen Y -- or nearly 50 million shoppers between 18 and 35 years old -- visit big box centers at least once each month," According to The Urban Land Institute. "The proportion is closer to three-fourths among residents of newer suburbs."
This trend is especially evident on the all-important Black Friday shopping day. Last year 36% of Millennials shopped on Black Friday out of the 35 million Americans who headed out to the stores, according to the National Retail Federation. The trade group also noted, "That same demographic was also the largest group to shop on Black Friday (72%)."
Amazon has been fighting back against these big box retailers with its own pre-Black Friday sales, this year starting weeks before the week of Black Friday as it has done in the past. It's hiring 70,000 seasonal workers to staff its fulfillment centers during the holidays, an increase of 40% over last year.
Even with all hands on deck and the always-open nature of online retail, Black Friday sales (pre- and post-) may be hindered by Amazon's recent move to raise its free shipping minimum purchase to $35 from $25.
Here again, bricks-and-mortar offers shoppers a workaround: Wal-Mart has improved its free ship-to-store which now comprises 10% of online fulfillment, and has plenty of under $35 impulse items.
Amazon.com has more dot-com competition
While it's true that you can buy everything from diapers to diamond jewelry on Amazon, well, the same can be said for the two generalist retailers -- Wal-Mart and Target, who are constantly improving both their online selection and the electronic shopping experience.
Wal-Mart has spent big bucks upgrading its search engine, hiring Silicon Valley talent, and developing a mobile shopping app, all to make a seamless omni-channel shopping experience.
This year it is doubling the amount of items available on walmart.com to five million-plus, and opening two of its largest online fulfillment centers in Texas and Pennsylvania for a total of 130 distribution centers.
Target has also been implementing ship-to-store. With the debut last spring of its Cartwheel mobile app, a free app that alerts shoppers to discounts in-store, shoppers may be able to save even more than last year. As CEO Gregg Steinhafel said then, "We know that our guests often compare prices online. With our new price-match policy and the additional 5% savings guests receive when they use their REDcard, Target provides an unbeatable value."
Last holiday season Best Buy's CEO Hubert Joly laid out an ambitious plan to improve Best Buy's share of online sales, then only at 7%, compared to its bricks and mortar share of 18% in its product categories.
Best Buy's online site garners 1 billion visits annually. It has been working feverishly to convert those browsers to buyers with more personalization, reduction in the number of clicks to buy and generally aiming for that Amazon-like ease of buying. Waiting on the decks are 40 million Best Buy Reward Zone members the company hopes to leverage.
It's Still the Most Wonderful Time of the Year
Despite the increased competition from the big box world, Amazon is prepared. Aside from those 70,000 workers-- more than Wal-Mart's 55,000 seasonal workers hired -- for the first time ever, select Amazon third party sellers will be able to offer their unique wares, unavailable at big-boxes, as part of Amazon holiday promotions.
Although the competition is better armed this year, Amazon's holiday sales will likely continue their upward trend. However, with the big box stores bringing out the big guns, holiday sales may not be as merry for Amazon as they have in previous years.
