Founded just 20 years ago, Amazon is set to cross the $100 billion mark in revenue this year, making it one of the biggest retailers in the country. Meanwhile, traditional mall anchors like J.C. Penney and Sears are facing extinction. With the booming growth of the so-called etailers and the struggles of malls and department store chains, it seems only natural to ask: Can these traditional brick-and-mortar retailers survive? To answer that question, we turned to three of the Motley Fool's top retail analysts. Here's what they had to say:
Jeremy Bowman: While the success of companies like Amazon has attracted plenty of hype, the simple fact remains that the vast majority of consumer spending is done at physical stores. According to the Census Bureau, e-commerce spending in the first quarter accounted for $74.9 billion of sales, which may sound like a lot, but that's just 7% of total consumer spending. Online shopping has taken share from brick-and-mortar retailers every year since records were first kept, but sales at physical stores continue to grow and have outgrown e-commerce on a volume basis with the notable exception of last quarter, when retail sales were weak. In other words, despite the success of retailers like Amazon, traditional retail is not declining -- it's growing.
Even so, e-commerce presents a threat to brick-and-mortar stores with low prices and the convenience of shopping from home, but the big boxes seem to finally be responding. Wal-Mart is making a record investment in its e-commerce channel this year, and Target has also made online sales a priority, lowering its free shipping minimum to $25.
While it's true that some shopping malls are closing, they are mostly in economically depressed areas, victims of the recession, or ones that rely on dying anchors like Sears and J.C. Penney. High-end malls are thriving. For a look at what the future of mall-based retail looks like, visit your local Apple store.
Rather than being subsumed by the e-commerce beast, physical retailers will adapt, in part, by leveraging their physical space through programs like in-store pickup and ship-from-store and continue to grow. The success of Amazon may be thinning the herd, but strong brands will have successful stores for the foreseeable future.
Tamara Walsh: The retail landscape will look vastly different in 10 years, and it probably won't be home to many of the big-box stores we know and love today. The early casualties of the bricks vs. clicks debate are already echoed in the names of once-dominant brick-and-mortar chains like Borders, Circuit City, and, more recently, Radio Shack. All of those retailers were forced to declare bankruptcy, largely ecause of the precipitous rise in consumers' online shopping habits.
Part of the problem is pricing. E-commerce companies such as Amazon have lower overhead costs because they don't have physical storefronts like their big-box counterparts do. This, together with Amazon's unrelenting commitment to offering the lowest possible prices on everything under the sun, make it a fierce competitor for cost-heavy brick-and-mortar retailers. Cue the showrooming epidemic. Best Buy has been a victim of so-called showrooming in recent years, as consumers use its stores to comparison shop only to make purchases elsewhere online.
Amazon and other e-commerce giants like eBay also have the added benefit of massive logistics networks. This makes it easier than ever to get products shipped to customers in record time. With an Amazon Prime membership, for example, you can get an unlimited number of purchases delivered to your door in just two days for only $99 a year . With online retail giants now dedicating vast amounts of resources to finding increasingly affordable ways of getting products to consumers faster than ever (think: same-day in many cities), brick-and-mortars may not have a competitive leg to stand on before long.
Sean Williams: As my Foolish colleagues Jeremy and Tamara have demonstrated, either scenario could reasonably play out. But as the "breaker of ties," I'm going to side with Jeremy that they will survive.
As someone who worked in the retail industry for a decade, let me tell you that I've personally witnessed the struggles of retailers to adapt to online pricing. Companies such as Amazon do have the ability to make the shopping experience more convenient and potentially to undercut mall-based retailers' prices.
But there are few things an online website can't do, and at the top of the list is the ability to allow a customer to touch and feel a product before purchasing it. True, there's nothing to stop what's known as the showrooming effect, whereby a consumer can walk into a store, try out a product, then go back home and buy the one they liked on Amazon or some other online website. This is a problem that plagued electronic powerhouse Best Buy (NYSE:BBY) for years. Yet, last I looked, Best Buy was holding its own.
In reality, there are ways brick-and-mortar stores can add value, both tangibly and intangibly, to a consumers' transaction that'll keep them loyal to mall-based stores and not a faceless online website.
For example, having a knowledgeable and professional staff offers consumers a face to a business as opposed to the aforementioned faceless website. It allows the consumer to forge an emotional attachment to the brand or products represented by the brand, which is very difficult to do with the click of a mouse.
An inviting in-store environment is also critical. You may have noticed more in-store digital displays or interactive displays being used by mall-based retailers to relate to tech-savvy millennials or keep children entertained while their parents shop.
Loyalty rewards are another strong sales tool. Although loyalty rewards work online as well, the entire goal of the mall-based retailer is to keep you shopping within its brand. Whether through price matching (which is the route Best Buy went) or some nominal discount for staying loyal to a brand, these tangible discounts have the power to drive business away from Amazon.