The retail space is rapidly evolving today, as bricks-and-mortar retailers such as Target (NYSE:TGT) and Wal-Mart (NYSE:WMT) attempt to compete with e-commerce giant Amazon.com (NASDAQ:AMZN) in an increasingly competitive market. From smaller store formats to same-day delivery methods, retailers of every variety are experimenting with new ways to drive sales. Today, some of our Motley Fool contributors will discuss three retail trends that are transforming the industry.
Rich Duprey: One of the biggest trends in retailing today is reducing the footprint of stores. Wal-Mart is arguably the best example of retailers shrinking the size of their physical locations, as it has experimented with formats ranging from as small as 15,000 square feet for its Walmart Express convenience store-style format to 40,000-square-foot Neighborhood Markets, more akin to your local supermarket than the typical 180,000-square-foot Supercenter.
Yet it's not alone, as Target has been similarly experimenting with small format stores, having opened an urban-oriented CityTarget concept that's about two-thirds the size of the typical 130,000-square-foot Target store, and a TargetExpress this past summer that clocks in at 20,000 square feet.
Even coffee slinger Starbucks (NASDAQ:SBUX) is getting into the act, recently announcing that it would test express-style stores that feature limited menus and (hopefully) speedier service. It said the smaller size addresses the increase in urbanization and decentralization of retail and builds on the success it's witnessed at its drive-through stores, which account for more than 40% of its domestic store count.
There's a growing emphasis on convenience in retail. From shipping options that include free pickup at stores to mobile ordering and payment apps that allow consumers to shop where they want, how they want, and whenever they want. Helping customers get in, find what they want, and be on their way is driving this smaller design trend. They say good things come in small packages, and not needing to hail a shuttle bus to get from one side of a supercenter to the other is definitely a big deal.
Joe Tenebruso: Whenever I study a retail investment, I ask myself one question: Is this business Amazon-proof? Increasingly, that answer has been "no." That's because the retail titan has built a wide moat around its core e-commerce business, and it continues to grow more impenetrable by the day.
That widening moat positions Amazon perfectly within the fast-growing global e-commerce industry. And it may be surprising for some investors to learn that even after two decades of turbocharged growth, online sales still comprise only about 6% of global retail sales. With millions more people gaining access to the Internet every year, I expect the growth of e-commerce to continue at a rapid pace for at least another decade, and probably much longer. But there is a war erupting in this highly competitive arena between two titans -- and to the winner will go incredible spoils.
After years of torrid growth, Amazon has become the first – and often last – place online shoppers go for an ever-increasing selection of products. So much so that search king Google (NASDAQ:GOOG) (NASDAQ: GOOGL) now considers Amazon a bigger threat than even some of its more search-focused competitors. That's because the more people who go directly to Amazon.com to shop, the less they rely on Google's search engine to find what they're looking to purchase, and that's a direct assault on Google's most profitable and important business. Google is not standing idly by and has countered with product listing ads at the top of its search results that make it more convenient for shoppers to quickly find what they're searching for, in hopes that this will stem the tide of shoppers who jump directly into Amazon's waiting arms.
While the incredible growth of e-commerce will probably make it so both Amazon and Google continue to enjoy progressively increasing revenue and profits for the foreseeable future, should one of these rivals gain a strong advantage over the other, its shareholders could enjoy tremendous gains in the years ahead. As such, I will be watching this battle closely as it unfolds.
Tamara Walsh: Expedited shipping and in-store pickup is another retail trend worth watching. Amazon offers its Prime members the added convenience of free two-day shipping on an unlimited number of purchases for just $99 a year. The world's largest online retailer is also testing same-day delivery by licensed taxi drivers in San Francisco and Los Angeles.
Amazon is even looking to aerial drones as a possible way to make speedy deliveries in the future, with what it calls Prime Air. The e-tailer claims delivery by drone would enable Amazon to deliver small packages within just 30 minutes. While same-day delivery via drone is exciting, it's something that will face federal oversight before becoming a reality.
In an Amazon-driven world, big-box retailers such as Target and Wal-Mart are entering the shipping wars with a convenience factor Amazon can't match: in-store pickup. That means online shoppers can make a purchase on Target or Wal-Mart's website and swing by the store to pick the item up the same day. This is a major hurdle for Amazon because it is only beginning to experiment with physical store locations.
Moreover, with the holidays around the corner, Target is using its massive store base (roughly 1,934 locations in the U.S. and Canada) to its benefit by offering free in-store pickup on tens of thousands of products available at Target.com. The discount retailer is further sweetening the deal by promising to fill as much as 80% of these orders within one hour.
Shipping and convenience are currently two of the biggest trends shaping the retail landscape today. Ultimately, for retailers to attract customers today, they need to offer a compelling delivery experience.
Joe Tenebruso and Rich Duprey have no position in any stocks mentioned. Tamara Rutter owns shares of Amazon.com, Starbucks, and Target. The Motley Fool recommends and owns shares of Amazon.com, Google (A and C shares), and Starbucks. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.