NEW YORK— Housewares could have had a better year, as shoppers kept a tight grip on their wallets and pocketbooks.
Only recently have consumers begun to spend again as the U.S. Commerce Department statistics indicate, but the bad news is that they’re not spending money in stores. In fact, non-store sales rose 11.5% year-over-year, according to the most recent data.
It is not surprising then that the Walmarts, Targets, Bed Bath & Beyonds and Williams-Sonomas of the world are doing what they can to capitalize on customers’ growing preference for shopping online while at the same time using technology to upgrade the shopping experience in their physical stores, according to the 2017 edition of the HOMEWORLD BUSINESS® Top 100 Housewares Retailers.
The Walmart Way
Top-ranked Walmart has taken up the cudgel and is battling online as fiercely as any brick-and-mortar-based retailer. In the last year or so, Walmart has acquired e-commerce expertise through the takeover of such online retailers as Jet.com, which includes Hayneedle.com, Bonobos, Moosejaw, Shoes.com, ShoeBuy and Modcloth.
“The acquisitions have received a lot of attention, but our plan in e-commerce is not to buy our way to success,” said Doug McMillon, Walmart’s chief executive officer. “The majority of our growth is and will be organic. The acquisitions are helping us speed some things up.”
In competing with Amazon, Walmart had introduced a $49 ShippingPass for online customers, similar to Amazon’s Prime, providing two-day shipping. In May, Walmart scrapped ShippingPass in favor of free two-day shipping on all online orders of $35 or more.
Walmart is sometimes stingy with figures, but earlier this year the company said that at the end of 2016 it offered 35 million SKUs online. That number grew to 50 million by the end of this year’s first quarter and it is presumably still growing.
Since 2010, @WalmartLabs has added at least 10 technology or digital commerce businesses.
“Walmart is doing all it can to compete with Amazon in an ever-changing retail environment, and those innovations and acquisitions are paying off in increased sales and by narrowing the gap with Amazon,” said Max Goldberg of Max Goldberg & Associates. “Walmart management has not been afraid to reach outside its comfort zone to bring successful e-commerce entrepreneurs into its orbit and then they’ve had the good sense to listen to these experts.”
As the country’s largest retailer of supermarket merchandise, Walmart has worked diligently to marry groceries and e-commerce. The latest wrinkle, being tested in Oklahoma City, involves an automated 20-foot by 80-foot grocery pickup kiosk with refrigerated compartments. The concept is based on the hundred or so Pickup Towers Walmart has set up around the country, which the company described as a “high tech vending machine.” Designed for general merchandise items ordered online, these 16-foot tall self-service kiosks are loaded by store associates. Customers can claim their orders by scanning a barcode on their smartphones.
“Our Pickup Towers are the latest example of how we’re using new technology to save our customers time, in addition to money,” said Justin Rushing, Walmart spokesman.
Aside from the self-service Pickup Towers, Walmart has the more traditional buy online, pickup at store service where associates deliver orders to customers’ vehicles. With about 500 such locations operating at the beginning of 2017, Walmart is adding the service to another 600 units this year, which will cover more than a quarter of its U.S. stores.
For Walmart stores being retrofitted for online order pickups, the pickup area is moved to the front of a store and a lounge area for waiting customers is installed.
Earlier this year, Walmart launched a pilot project called Store No. 8 in Northern California that is intended to be a technology incubator. “Sometimes you invest in these big, transformational ideas that maybe aren’t ready for prime time today,” said Seth Beal, svp/incubation and strategic partnership at Walmart. Beal will be jointly overseeing Store No. 8 with Jet.com’s head of strategy, Katie Finnegan.
When Store No. 8 was launched, Walmart officials said one initiative would be to nurture “startups that have a responsibility to change the course of retail.” Another objective of the stores is to initiate projects that help develop “highly personalized, one-to-one shopping experiences.”
Technology is not the end-all and be-all of retailing, acknowledged McMillon. “We will compete with technology, but win with people,” he told associates and shareholders assembled at Walmart’s annual meeting. “No doubt our work will be different in the future: robots, drones and algorithms will do some work that we used to have to do. Some people are afraid of what these changes will bring. I don’t think we should be. Instead, I think we should recognize that we’ll be able to learn, grow and change together.”
Is Costco Amazon Proof?
Many retail industry observers choose to chronicle the “battle of the titans” between Walmart and Amazon. But the real anti-Amazon is Costco, where executives believe the customer experience they serve up in their warehouses cannot truly be replicated online. As it is, e-commerce accounts for only about 4% of Costco’s annual sales.
“Our value proposition is best served for us when it’s in-store, getting members to come in and buying when they can see everything there that we have,” said Richard Galanti, Costco’s chief financial officer.
While Costco does sell online and has been both upgrading the site and the number of items it sells there, Galanti conceded the company is not “freaking out about” going head-to-head with competitors that have established e-commerce businesses. Rather, he cites some of Costco’s competitive advantages: bulk-sized packages, limited assortments, brand availability that may vary from week to week and a merchandise mix where food and beverages generate nearly 60% of total sales.
“We have never been big on convenience,” Galanti said. “Our success has been based on pricing value, quality and quantity at the lowest possible price. We do appreciate that value also is convenience.”
Citing Costco’s ability to hold its own against online retailers, Barclay analyst Karen Short wrote a positive critique of the company for her clients. “Given Costco’s high quality merchandise in food, low prices and the frequency of purchase for these items, we believe the company’s customers will remain loyal and believe Costco’s price positioning and quality in food insulates it from Amazon,” she said.
Costco shies from the description of being “Amazon proof,” but Galanti admitted, “We look at our business of getting you in the store still is paramount to what we want to do.”
Customer loyalty plays a big part in Costco’s success, with nearly 90% of customers renewing their membership year after year. In 2016, 86.7 million cardholders ponied up $2.6 billion in fees, with most of that money dropping right to Costco’s bottom line.
Costco’s loyal customer base is part of the reason Fitch Rating Service issued an “A+” on a recent Costco offering. “Costco’s member base has grown at a 6% compound annual growth rate over the past five years,” noted Fitch analyst Carla Norwood Taylor. “Renewal rates have approximated 90%, providing a stable stream of fee-based revenue. In fiscal 2016, membership fees totaled $2.6 billion, representing a modest 2% of Costco’s $118.7 billion of revenue, but 72% of its $3.7 billion of reported operating income.”
In June of this year, Costco raised its annual membership fees in North America 9%, to $60 for standard membership and $120 for executive status.
Target Making Progress
When it comes to technology and focusing on stores versus e-commerce, Target lies somewhere in the middle between Walmart and Costco. On the digital front, Target has been working hard to improve online sales. The results showed in the fiscal second quarter ended July 29 when the company reported digital sales rose 32% over the same quarter the previous year. But truth be told, Target’s e-commerce efforts generate only a slightly higher percentage of total sales than do Costco’s.
Target has been trying to stabilize prices to an overall lower pricepoint but at the same time eliminating discounts and price promotions. This seems to be working, according to Brian Cornell, Target CEO. “We saw a meaningful increase in the percent of our business done at regular price and a meaningful decline in the percent on promotion,” Cornell said in a conference call with analysts. “This demonstrates the progress we’ve already made and gives us confidence we’re on the right track.”
To bolster deliveries of its flagging grocery sales and enhance its e-commerce package deliveries overall, Target recently announced a deal to acquire Grand Junction, a transportation technology company. Grand Junction has been working with Target on a same-day delivery pilot project based in New York City’s Tribeca neighborhood.
The success of the pilot project was described by John Mulligan, Target’s chief operating officer, when he spoke with analysts in August.
“The value of the average basket for these same-day delivery orders is more than six times the store average at the Tribeca store and contain nearly four times the units compared with the store’s typical basket,” Mulligan said. “Importantly, net promoter scores [i.e. the likelihood customers will recommend Target to family and friends] for the same-day delivery service have been higher for the Tribeca store overall, demonstrating the quality of execution so far. Based on these encouraging initial results, we plan to expand the same-day delivery test to several other New York City locations in the fall.”
Even with the delivery option in some areas, Target customers are increasingly opting to pick up online orders at a nearby store, said Mulligan. “Through the first half of the year, store pickup volume has grown more than 30% above last year,” he said. “As more of our guests respond to the convenience of order pickup, we are investing in system enhancements and store labor hours to continue to elevate the guest experience. These investments will be especially important in the fourth quarter holiday season when guests are particularly time pressured and rely on this fulfillment option even more frequently.”
Earlier this year, Target launched a $7 billion, three-year program to remodel stores, introduce its new pricing structure and revamp logistics to better accommodate the needs of both its e-commerce and brick-and-mortar operations. As part of it plans, the company said it expects to forego about a billion dollars in potential profits in order to lower prices overall with the intended purpose of boosting online sales. The company is also stepping up its program of opening smaller footprint stores in densely-populated urban areas.
The mini-Targets being built average around 40,000 square feet, compared with approximately 175,000 square feet in a standard Target store. The company plans to have about 130 of these so-called City Targets in operation by the end of next year. While SKUs are obviously trimmed for the small format stores and whole departments eliminated, the core merchandise categories include groceries, apparel, housewares, hardware, electronics and office supplies. These locations also serve as pickup points for online orders.
Boosting Digital Commerce
Home goods, including home furnishings and housewares, showed the greatest growth in online sales of any merchandise category last year, according to the Internet Retailer “2017 Online Home Goods Report.” The 102 housewares and home furnishings retailers tracked in the report had combined online sales of $14.7 billion, an increase of 27.5% from the previous year.
Storage and organization showed the greatest growth among the housewares classifications, rising 70.4% year-over-year, while small appliances and electronics rose 10.6% and kitchen and bath goods increased 9.1%.
One of the conclusions in the report reads: “Amazon will almost certainly continue to make in-roads in this market. But online retailers like Wayfair, Williams-Sonoma, Nebraska Furniture Mart and others have shown a willingness to step up their game with new technology, faster deliveries, better customer service and cross-channel services like curbside pickup.”
Specialty retailers show divisions similar to those of big box stores, with Williams-Sonoma already generating more than half its revenues via non-store channels, while Bed Bath & Beyond has been a slower adopter of online retailing. TJX Cos., parent of the T.J. Maxx and Marshalls chains as well as HomeGoods, has until recently been a holdout when it comes to digital commerce.
Bed Bath & Beyond this summer acknowledged the bumpiness of the road traveling from a brick-and-mortar base to significant web presence when it eliminated eight titles in realigning store management, affecting about 880 employees.
“With the evolution in retail, we continue to strengthen our digital infrastructure and invest heavily in such areas as analytics, information technology, pricing, e-commerce, marketing, supply chain, and our contact centers,” said Steven Temares, Bed Bath & Beyond’s chief executive officer.
“As we work to continue to satisfy our customers through our omnichannel capabilities, the role of our stores is also evolving, and remains crucial to achieving our mission of being trusted by our customers as the expert for home and heart-felt life events,” Temares added.
Company officials said the store management realignment reflected a reduced emphasis on a rapid rate of store openings in favor of bolstering online infrastructure. Bed Bath & Beyond made a major move in e-commerce last year with the acquisition of One Kings Lane. The company also acquired Chef Central, an online retailer of kitchenware and cookware items catering to cooking and baking enthusiasts.
At this year’s annual meeting, executives said some plans were in the works to introduce Chef Central merchandise into physical stores, but no details were provided. This summer, One Kings Lane opened a brick-and-mortar store in the toney Long Island community of Southampton, NY.
To support its e-commerce initiatives, Bed Bath & Beyond has been expanding the number of markets where same-day delivery service is available. The growth in same-day delivery is being driven by fulfillment from local stores “because of the cost savings,” Temares said. This builds on an enhancement that increased the functionality of a search tool that made it easier for consumers to determine the availability of products in local stores.
Balancing Store And Online Sales
Williams-Sonoma is in the curious position of being the most balanced omnichannel merchant among the HomeWorld Business Top 100 Housewares Retailers, yet finding it necessary to lure consumers away from the Internet and back into its stores. Most of the company’s brands— Pottery Barn, PBteen and West Elm among them— have been reporting declines in comparable store sales of late. In an attempt to remedy this, the company has deployed a “design crew” to stores all over the country, where the 500 crew members are prepared to offer customers advice on questions of style and design.
TJX is primed to become an even bigger player in home goods retailing with the U.S. launch of HomeSense, a banner already seen in Canada and Europe. The chain will be similar to but more furniture oriented than either sibling HomeGoods or the home departments in T.J. Maxx and Marshalls stores. The first HomeSense store cut the ribbon on August 17 in Framingham, MA, not far from corporate headquarters.
With a new store banner to roll out, TJX is restating its faith in the brick-and-mortar world, where it is opening 250 new stores this year en route to a corporate goal of having 5,600 stores in operation. The company currently has approximately 3,900 physical stores. HomeGoods hopes to add 400 more locations to its current base of 600.
This does not mean the TJX is foregoing digital commerce, it’s just that TJX stores are doing so well there is no reason to leave money on the table. As TJX CEO Ernie Herrman said at the company’s annual meeting, “Our strategy is to differentiate our online merchandising mix to drive traffic both online and to our stores.”
TJX has had mixed experience with selling online. The company launched its first website in 2004 but shut it down about a year later. It took until 2013 for a second website to be launched, one with a buying staff all its own to differentiate itself from the stores. There is also speculation that some of the company’s suppliers don’t want their goods sold online at TJX prices, where they could show up in price-comparison searches.
In the e-commerce space, the rivalry between Wayfair and Overstock.com is heating up, with Overstock CEO Patrick Byrne chiding Wayfair for its lack of profitability and the expensive manner in which it attracts new customers.
“We run a much more efficient shop,” said Byrne. “They are spending three times as much to get someone to visit their site than Overstock is spending.”
One statistic Byrne uses to bolster his argument is that Overstock takes in about $1,000 per employee, while at Wayfair the figure is only about $600 per employee.
Overstock is reportedly looking to get a leg up on Wayfair by offering two-day delivery and is searching for a logistics partner that can make this happen. One candidate mentioned is XPO Logistics, which already has a deal with Amazon to handle its bulky merchandise, though Overstock has said that it has no deal with the firm.
The fastest growing specialty retailer in the home goods space is At Home, which hopes to grow to 600 units from its current base of about 140. The retailer operates an informational website but does not sell any merchandise online. Still, At Home has recorded 12 consecutive quarters with sales increases of 20% or more.
At Home’s primary vehicle for communicating with consumers is e-mail, where it is continuously updating lists, prompting At Home CEO Lee Bird to boast, “We have more than doubled the size of our e-mail database for six straight quarters.”
Changes To The Top 100 List
A glance at the HomeWorld Business Top 100 Housewares Retailers list will reveal its new streamlined format. As retailers meld in-store and online operations, assigning sales to one category or the other became increasingly arbitrary. Some companies say they don’t even track sales in each channel. So the “online sales” column has been dropped.
Lines are also blurring between retail segments: Amazon is opening physical stores all over the country, Walmart ranks as the country’s third largest online retailer and housewares are available in clothing stores. Every big box store seems to have a pharmacy, and groceries can be purchased in drug, department, discount and dollar stores, as well as in warehouse clubs, convenience stores, housewares specialty stores, and home improvement stores, not to mention supermarkets. As a result, the column classifying retailers by type has been eliminated from the chart.