Top 100 Retailers

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The dot-com boom launched 20 years ago, ushering in a new era of retailing, and 2017 is the year that acknowledges the future has arrived. Store-based sales still overwhelm e-commerce, but the scales are tipping — not that the impact is readily noticeable in STORES Magazine’s annual list of the Top 100 retailers. Amazon crept up to seventh place, but QVC is the only other retailer on the chart that does the vast majority of business in the non-store realm.

The nation’s largest mass market retailers all rank in the top 10: No. 1 Wal-Mart, No. 3 Costco, No. 7 Amazon and No. 8 Target. The remaining top 10 retailers are arranged in pairs: two traditional supermarket operators (No. 2 Kroger and No. 10 Albertsons); two home improvement retailers (No. 4 The Home Depot and No. 9 Lowe’s); and two drugstore chains (No. 5 CVS and No. 6 Walgreens Boots Alliance).

“We are witnessing a transformation in which the physical environment now needs to serve three shopper missions rather than one,” says Ray Gaul, vice president of research and analytics with Kantar Retail. “The old one was a full shopper mission where the consumer discovers products, selects the products and then transports the products home.”

The two additional missions are buy online, pickup at store and showrooms and product information, Gaul says. “These will require two things … store remodels and store closings, or both, and a new economic model to cover costs and deliver profits.

“Companies that have embraced this new way of shopping have begun to deliver better profit per square foot than companies that have not,” he says.

Rebalancing act

Steven Roth, CEO of Vornado Realty Trust and a veteranv observer of the retail industry, maintains that the country is “grossly overstored” and that a third of the weakest retail locations should be shut down.

“This very painful process will surely take more than five years,” he says. “It will also create enormous opportunity for those with the capital and management platforms to [do so].”

Shopping center owner Starwood Capital Group’s Barry Sternlicht says “retail will rebalance” and be “smaller but healthier in five years.”

“The important thing to remember with e-commerce is that it is a tool to help shoppers do things more conveniently in more places than before,” Gaul says. The level of knowledge when consumers are in-store has “changed dramatically,” he says.

“Retailers with physical locations that play an important role in the decision to buy must hold on to their physical real estate but make it work differently to acknowledge that shoppers will probably have more complete information [and]more options.”

Supply chain logistics are a key to this new hybrid retail world, and Walmart got where it is today by investing in and constantly improving them. Today it is investing in logistics expertise.

“Walmart has the best planning software to schedule truck arrivals and departures, to track ships in the Atlantic and Pacific and air traffic,” Gaul says.

Walmart works to ensure that when consumers shop online, they pay the lowest cost to get the product from its source to the final destination. E-commerce giants such as Amazon and Alibaba are “dominating discussion on ‘agile logistics,’” he says. “However, there is still an opportunity for someone to develop everyday low cost agile logistics. This is a title that is Walmart’s to lose over the next 10 years.”

Enhancing online

Walmart has been spending a lot of resources on omnichannel, first entering into an alliance with JD.com, China’s largest internet retailer by revenue, and then purchasing Jet.com for $3 billion to broaden U.S. e-commerce operations. Online retailers Moosejaw, Shoebuy and Modcloth and Bonobos are recent acquisitions for Walmart, also rumored to be interested in Wayfair, the web-only home furnishings and décor retailer.

In addition, Walmart has launched a retail technology incubator, called Store No. 8, to nurture nascent businesses including the small e-retailers the company has been acquiring.

“We’ll be bringing in entrepreneurs and giving them capital and the opportunity to change the course of retail five or 10 years out,” says Marc Lore, the founder of Jet.com and now CEO of Walmart’s U.S. e-commerce business. “The focus is not just on today. Think bigger.”

“Companies should be in the business of creating the future and not simply responding to what pundits and polls think their customers are looking for,” says Mohamed Amer, global head of strategic communications for consumer industries with SAP.

“Without experimenting and probing, you can never discover the hidden potential in any market,” he says. “Walmart’s Store No. 8 is a powerful symbol and reminder that change and innovation can only happen when you challenge the status quo.”

A progressive and innovative approach to personalized and meaningful shopping experiences is “crucial to the future of bricks-and-mortar, clicks-and-mortar and every new iteration of online-offline shopping we’ve yet to see,” says Julie Bernard, chief marketing officer at marketing platform Verve Mobile.

“We know from recent data that the in-store experience is fusing with the mobile experience, and that shoppers, particularly Millennials and Generation Z consumers, consider their bricks-and-mortar engagements to be just as powerfully social and multichannel as any other part of their on-screen day-to-day lives.”

Walmart is enhancing its online efforts with multiple initiatives: This spring, the retailer offered special discounts on 10,000 different items if they were ordered online and picked up in-store.

“One of the things I love most about Walmart’s heritage is the maniacal focus on our customers and finding ways to offer them low prices — every day,” Lore, who was involved in the project, wrote in his blog at the time.

“We do this by creating efficiencies in our business so we can share the savings with them. And, in the online world, we can use our physical stores and supply chain to do some pretty unique things for our digital customers.”

Maintaining loyalty

E-commerce efforts of the other Top 10 bricks-and-mortar mass market operators are less advanced.
Costco last raised membership fees in November 2011 and set June 1 of this year for increases to $60 for standard membership and $120 for executive. The increase reflects a membership base “consisting of households with higher incomes than the U.S. average,” and shouldn’t “negatively impact growth,” says Fitch Rating Service.

E-commerce is another story, Fitch says: “Growth in online sales has varied between the high single digits to mid-teen rates over the past several years, but it is not making a significant contribution to comps because e-commerce only represents about 4 percent of Costco’s net sales.”

Costco’s slow adoption of e-commerce may help in its battle against Amazon, suggests Barclays analyst Karen Short. “Given Costco’s high-quality merchandise in food, low prices and the frequency of purchase for these items, we believe that the company’s customers will remain loyal and believe Costco’s price positioning and quality in food insulates it from [Amazon],” she wrote in a recent research note.

Costco has no intentions of becoming an omnichannel retailer. “Our value proposition is best serviced for us when it’s in-store, getting members to come in and buying when they can see everything that we have,” says Richard Galanti, Costco’s chief financial officer.

Target is still very much dedicated to bricks-and-mortar as it continues to roll out smaller-format stores in densely populated urban areas. It had 32 at the beginning of the year; the ranks are slated to grow to 130 by the end of 2019.

The retailer is spending $2 billion this year in the first phase of a three-year plan costing $7 billion for new and remodeled stores as well as other initiatives. Calling 2017 “a year of investment,” Target CEO Brian Cornell says the initiatives will include more private-label merchandise and an upgraded supply chain.

Its key nod to e-commerce is a stated willingness to forego $1 billion in potential profits to cut prices and build lower-margin digital sales.

As a result of competition from both e-retailers and big box discounters, Target “has been forced to accelerate investments in omnichannel initiatives and tighten its focus on pricing and merchandising assortments,” Fitch says.

Piloting innovation

It can be hard to track Amazon’s many retail initiatives. In May the threshold for free shipping for non-Prime shoppers dropped to $25 from $35. The delivery window, however, extends to five to eight days.

The company is experimenting with groceries, encouraging manufacturers to develop packages that can withstand the demands of fulfillment center-to-consumer shipping. Amazon is also building a network of physical stores. “It seems counterintuitive they are investing in any physical stores when they are blamed for the demise of so many of them,” says marketing advisor Sucharita Mulpuru, “but no cow is sacred.” All this was in place prior to Amazon’s blockbuster announcement that it would pay $13.7 billion for Whole Foods Market.

Six “bookstores” are open, with another half dozen in the works, as much showrooms for the company’s electronic devices as purchase venues for bibliophiles. Then there are food store pilot projects, where everything from robots to digital payment systems are tested and the general public is excluded. Amazon Go, a cashierless convenience store, was shuttered after three months in which only Amazon employees were allowed to shop.

Groceries are important to Amazon in battles against Walmart as well as its efforts to build foot traffic in physical stores. Groceries ordered online and delivered to consumers constitute just about 3 percent of the U.S. market, according to Randy Burt, a partner in the food and beverage practice at consultant A.T. Kearney.

Burt characterizes Amazon’s desire to open physical locations as a necessary step to selling more groceries. “I think they are recognizing for certain things you can’t digitize and replicate online all the experiences one has in a store,” he says.

“What appears to be clear is they haven’t yet zeroed in on a format they’re willing to massively scale,” says Scott Galloway, a marketing professor at New York University’s Stern School of Business. “This is a company that the moment it figures out something that works, it puts nuclear energy behind it.”

“Grocery is an industry that changes slowly,” Gaul says.

“The likelihood of pure play e-commerce companies understanding the rules of fresh food handling and grasping them as quickly as experienced supermarket operators is unlikely,” he says. “Supermarkets in this country are throwing real energy at this opportunity, not wanting to suffer the same fate as non-food retailers.”

Calculated growth

Kroger and Albertsons have been bulking up via acquisitions. Kroger has digested the major takeovers of Roundy’s Supermarkets in the Midwest and Harris Teeter in the Southeast.

Earlier this year the company bought Murray’s Cheese; Murray’s, best known for its flagship store in New York’s Greenwich Village, has been partnering with Kroger since 2008 and operated 350 cheese departments in Kroger supermarkets at the time of the buyout.

Kroger is also working on other initiatives aimed at keeping online competitors at bay. In May, it began testing meal kits in some Cincinnati stores; the company is also having success with the rollout of its buy online, pickup in-store service and is contemplating home delivery.

Eleven years ago, the investment firms that controlled Albertsons brought in Robert G. Miller to be the chief executive of a 655-store conglomeration of regional supermarket chains west of the Mississippi River.

Today, Albertsons boasts 2,400 stores flying 19 different banners including Safeway, Shaw’s, Star Markets, Acme and, of course, Albertsons. The early years of growth consisted of buying distressed chains.

“The struggling stores were in areas where we competed with Walmart,” Miller says. “We bought them for real estate value. Over the next six years, we sold and closed stores, paid back debt.”

E-commerce, whether its own or involving internet rivals, is not a major consideration for Albertsons.

“We don’t want to be cutting edge, ahead of the curve,” Miller says, “but we want to understand what’s going on. So far all this stuff about being able to check the customer out quicker and walking out of the store without having to go through a register and all that kind of stuff, we’re not ready to invest in any of that yet.

“But we are working on initiatives with technology partners,” he says. “If we see something that we think is going to work, we aren’t afraid to invest a lot of money.”

Learn more about the Retail Power Players
Supermarkets
Mass Market
Mass Apparel
Restaurants
Hardware/Home Improvement
Premium Apparel
Consumer Electronics
Non-Store
Luxury Apparel
Jewelry/Accessories
Leisure
Home Goods

David P. Schulz has been writing for STORES since 1982 and is the author of several non-fiction books.

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