Wal-Mart Stores Inc. might feel ready to take on all comers in the retailing landscape it dominates, but one possibility makes it cringe: Amazon.com getting into brick-and-mortar retailing.
This story first appeared in the December 3, 2009 issue of WWD. Subscribe Today.
“It’s a threat. It’s a problem,” John Fleming, executive vice president and chief merchandising officer of Wal-Mart U.S., said of the possibility, while speaking Wednesday at the Fashion Group International economic outlook seminar at the New York Hilton, titled, “The ‘New Normal’ Is ‘Old Hat’ for Winners.”
Fleming said after the seminar that Amazon is considering stores in Japan and the U.K. in collaboration with retail partners. He said he could see a scenario whereby Amazon opens “depots” in dense urban areas “close to consumers,” enabling them to pick up what they order online rather than wait for delivery.
An Amazon spokesman declined to comment.
No wonder Wal-Mart is worried: Amazon offers almost every product category found in a Wal-Mart Supercenter, from discount books to toys, electronics to housewares, apparel to sporting goods — and is often as price-competitive as the world’s largest retailer. Wal-Mart, meanwhile, has begun beefing up its Web site to be competitive with Amazon.
However, Fleming and others at the FGI event emphasized the serious costs and challenges that would be incurred by Amazon to develop a new distribution network and a store format. “Why would Amazon burden themselves?” asked Carl Steidtmann, chief economist at Deloitte Research.
They also noted that despite the industry imperative to “be multichannel” in the virtual world, major online players have yet to embark on brick-and-mortar strategies, although some companies, such as Bluefly and eBay, have done pop-ups.
Joining Fleming and Steidtmann on the panel were Eric Wiseman, chairman, president and chief executive officer, VF Corp., and Paul Charron, former ceo of Liz Claiborne and now senior adviser for Warburg Pincus. The session was moderated by Robin Lewis of Robin Lewis Inc. and The Robin Report.
Fleming called Amazon, with 2008 revenues of $19.17 billion, the fastest-growing retailer. “Stores aren’t the central point anymore. Consumers are in the middle, and there are all these access points to the brand.” Internationally, Fleming cited Wal-Mart’s biggest competition as the Internet, Tesco, Carrefour and the two or three strongest local players in a given locale.
What else concerns Wal-Mart? “We have to pay more attention to our in-store experience,” said Fleming, adding that, well before the recession hit, by studying consumers, Wal-Mart knew there were many Baby Boomers who didn’t like the way stores “loaded up” with inventory, and that for many of them, a 200,000-square-foot box was too big to navigate. He also said with the rising Boomer population, “health and wellness is an incredible trend.”
Wal-Mart has “no stated objectives to grow private brands, unlike our competitors. Ultimately, we are about selling brands. That’s what our customers want — at low prices.”
Fleming also discussed Wal-Mart’s rationale for opening a New York fashion office. “The objective was never to increase our fashion quotient,” he said. “The whole idea was a more efficient business model.” Sending samples back and forth between New York and Bentonville, Ark., where Wal-Mart is based, was slow, but with the New York office, “we have a more agile team that can stay on top of the marketplace.”
Wiseman said VF began in 2003 to take note of a shift in demographics and decided to add younger brands that connected to consumers under 35, such as Vans and The North Face, to its portfolio.
“It seemed smart at the time; it feels smarter now,” Wiseman said.
VF has 750 retail stores worldwide that do $1.3 billion in revenue, representing 17 percent of the company’s sales. It hopes to increase the figure to 22 percent in five years. Next year, VF will open a Wrangler store in Colorado geared more toward a Western specialty store theme, moving that brand toward a more lifestyle-oriented approach.
Wiseman said those stores are good not just for their contribution to the bottom line; they also provide customer feedback that can help in merchandising discussions with retail partners.
Charron said in the environment often referred to as the “new normal,” companies must have “vigorous formalized strategic planning,” an understanding by all top executives of how the firm makes or loses money and a realization that “the vision thing and the operating thing go hand-in-hand.” Ongoing improvement and cost reduction must be “a way of life,” he asserted.
He said department stores “have been in a state of secular decline since the late Eighties, but I don’t think they are going away. There are still a lot of people who like to shop them and a lot of brands with presentations that lend themselves to department stores. Department stores will be around but will have to evolve really rapidly and continually.”
But Steidtmann saw things differently: “It’s hard for me to see 20 years from now that there will be any department stores….Every time a hearse goes by, there goes another department store customer.”
Taking a bullish stance on the economy, Steidtmann said with bankruptcies and store closures having reduced the number of competitors, most firms will feel better even if holiday sales come in flat compared with a year ago. Moreover, “lean inventories, even if sales are flat, could mean a 10 to 15 percent gain in profitability over last year,” the economist added.
Because consumers have been repairing their balance sheets, many are in better shape financially than they’ve been in the past two years. “At some point, the bunker mentality will fade, so consumer spending should come back,” even if unemployment remains high, he said.
He cautioned that, as severe and taxing as the recession has been, it’s hardly the first systemic challenge faced by the U.S. and world economies.
“The most dangerous words are, ‘This time it’s different,’” he said.