The struggles between brick-and-mortar retailers and their online offspring continue. More precisely, the competition shows no signs of abating — or reaching any conclusion. If anything, it has gathered momentum, with the insertion of Amazon as the target of brick-and-mortar retailers seeking to build a viable online business.
Perhaps enough has been said and written about Amazon, a retailer once dismissed as chronically unprofitable but now hailed as the U.S. retailer that, more than any other, is setting the pace in sales and, yes, earnings.
So now come, in one week, the latest performance figures from Walmart and Target, figures that highlight the less-than-satisfactory contributions from their digital components when compared to the figures Amazon turns in. To be fair, it’s probably wise to remember that Amazon’s total sales are digital sales, a business the online retailer has been honing for 20 years.
To be fair, let’s also try to remember that Walmart and Target have only recently recognized that digital sales are an important and growing sales component, and that these two world-class retailers until recently dismissed online sales as marginal to their businesses.
For the record, Walmart reported second quarter revenue of $120.9 billion, while Target reported $16.2 billion in second quarter revenue. For both companies, the digital component accounted for around 3% of total revenue. These digital sales figures were universally dismissed as unacceptable, precisely because the digital contribution was deemed inadequate.
Again, it must be remembered that both Walmart and Target are new to digital sales, and that these two retailers transformed retailing by bringing consumers into their stores in numbers and frequencies beyond the imagination. Fact is, they continue to do so, at a time of slowing retail sales and a sudden surge in the digital component of those sales.
Let’s assume that both Walmart and Target underestimated the impact of digital on retail sales. Let’s further assume that many of their assumptions about digital were also incorrect. Has anybody, except a handful of visionaries, been right about the impact digital has had, and will continue to have, on the retail community? Truth is, the positive aspects of digital retailing are turning out to be accurate, while the negatives are turning out to be overblown or merely incorrect. Digital retailing has gotten easier and more attractive over time, while the hurdles many predicted for it have been corrected or minimized.
During a period of unprecedented criticism, Amazon has broadened and improved its model and driven the concept of online retailing to the point where it is accepted as a viable and sometimes preferable alternative to brick-and-mortar shopping. And where the two have been combined — ordering at home and collecting at the store, for example — the combination has proven to be an unbeatable one.
But now let us assume that both Walmart and Target have accepted digital retailing as an integral shopping component. Are we further to assume that these two retailers are willing to turn that business over to Amazon and other online retailers and content themselves with winning the brick-and-mortar shopping component? Not likely. And certainly not based on the aggressive way they have pursued retail business in the past.
Digital retailing is a complex business. Brick-and-mortar rules don’t necessarily apply. In fact, what works for one doesn’t necessarily work for the other. More than that, it sometimes works against the other.
Viewed in that context, the performance figures just released by Walmart and Target might well be the most significant mass retailing has seen in some considerable time.
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