Amazon, Walmart challenge retailers to keep up

Home Depot, UPS, others responding.

To say that Walmart and Amazon have created a one-two power punch that has fundamentally reshaped the entire retail industry is part understatement and part duh.

Walmart has become the dominant bricks-and-mortar player while Amazon is king online. Each has critics that blame its business practices for killing everything from mom-and-pop shops to big national chains.

But experts say Walmart’s and Amazon’s real strength comes from thinking way beyond their core businesses. While other retailers try to perfect what they currently do, the two retail giants offer arguably the largest amalgam of services designed to meet as much of a customer’s daily needs as possible — on the cheap.

“Their whole mentality is almost a biosphere mentality,” said Minsoo Pak, chief creative officer at Sparks Grove, the Atlanta-based marketing strategy arm of consulting firm North Highland.

That’s why Walmart provides eye exams, money transfers and fishing licenses at stores and Amazon is creating its own TV content and slowing rolling out grocery delivery in select cities.

In response, other retailers and distribution companies, including big local giants like Home Depot and UPS, have had to adapt their game plans.

Atlanta-based Home Depot has rolled out a “buy-online, ship to stores” program to retain and grow its customer base by quickly delivering products that consumers can pick up at a store. That service has been enhanced by significant investments in high-tech “fulfillment” warehouses that house almost three times more products than a typical store carries.

Craig Menear, president of Home Depot’s U.S. retail business, said the strategy solved two problems — it answered customer concerns about products left unsecured at their homes and eliminated the need for customers to be at home to sign for bulky purchases like bathroom vanities.

“It’s all about leveraging the advantage we have with more than 2,000 stores in proximity to customers,” he said. “Customers have taken to this a lot better than we thought they would.”

But Amazon is counter-punching as more retailers leverage their existing stores to get products to consumers quickly. It’s building more warehouses to be closer to customers to increase its delivery speed.

“Amazon is going beyond the computer and Walmart is going beyond the bricks-and-mortar store,” said Pak of Sparks Grove.

Walmart is pushing harder into Silicon Valley to try to attract technology engineers to improve its online business, which has lagged Amazon’s, a recent New York Times story reported.

Virtually nothing illustrates how much impact a move by Amazon or Walmart might have than when Amazon CEO Jeff Bezos unveiled late last year his vision of delivering packages by drones one day. The suggestion elicited its fair share of jokes. But when the laughter stopped retailers took note and wondered how such an outlandish idea could change the game.

Seattle-based Amazon is entering categories that could impact Sandy Springs-based UPS, one of its shipping partners. Amazon has launched Sunday delivery — in a partnership with the U.S. Postal Service — in select cities across the country. The program, which is available in New York, Los Angeles and Austin, has not yet been announced in Atlanta. (UPS does not offer Sunday service).

UPS spokesman Andy McGowan declined to speak on Amazon’s logistics plans.

“We don’t comment on customers,” he said. But he referred to recent comments by UPS Chief Financial Officer Kurt Kuehn that the company thinks future growth will not be in same-day delivery, but in the in-store pickup service that Home Depot has been deploying.

“We see (next day) as a much bigger force over time than the limited same day deliveries,” Kuehn told CNBC.

Part of the reason retailers are concerned about Amazon’s and Walmart’s growth is a result of the challenging road the industry faces, said Gary Lee, CEO of Atlanta-based InReality, a customer experience and design firm. Computers and now smartphones have made it much easier to comparison shop for the best deals online and reduced the need to search store-to-store in person.

Throwing delivery drones or other instant delivery methods into the mix only further distances customers from the need for a physical retail experience.

“At the end of the day, there has got to be a reason for that retail store to exist,” he said.

While continuing to break the retail mold, Walmart and Amazon have their fair share of problems, experts said.

Walmart’s first quarter 2014 earnings missed targets, with net income down about 5 percent. Prolonged winter weather was partly blamed for the decline, but analysts noted a more troubling reason may be that the company’s customers continue to struggle financially.

And despite its growth in numerous areas over the years — including creating Fire tablets to compete with Apple’s category-leading iPad — Amazon is still largely unprofitable.

“I don’t know what to make of that,” Greg Charleston, senior managing director of company turnaround firm Conway MacKenzie, said of Amazon’s lack of profit.

“If I were a shareholder, I would be furious,” Charleston said. “But the interesting thing is shareholders seem to be cool with it.”

That may be because Bezos is more interested in making Amazon a long-term player that will dominate the market for years to come, eschewing traditional short-term quarterly profit goals.

Charleston, who worked for one-time retail powerhouse KMart, added that he thinks Walmart could be waning. He’s seeing the same lack of freshness in product and physical quality — he called the chain “tired” — in the company’s stores that he saw in KMart before that company greatly reduced its number of locations.

Both Walmart and Amazon also are deeply unpopular among some activists who complain about worker rights, pay and the hardball tactics the companies use to get lower prices than competitors or to increase their market share. For example, Amazon has been criticized in a current fight it is having with book publisher Hachette, whose authors include James Patterson and Malcolm Gladwell. Amazon detractors say the retailer is withholding popular Hachette titles to extract lower prices from the publisher.

History has not always been kind to companies that try to do it all. Once upon a time, retail giant Sears was known for more than clothes, appliances and Craftsman tools. The company once sold everything from bees to prefabricated homes to horse saddles through its catalog and catalog stores.

But later on Sears failed to adapt more quickly to e-commerce and to transfer its extensive product line up to a more mobile consumer, experts said. The Illinois-based company earlier this month reported sales declined in the first quarter of 2014 and that it may close as many as 80 stores.

Doug Bowman, a marketing professor at Emory University’s Goizueta Business School, said that all retailers, including Walmart and Amazon, will be challenged in keeping up with millennials. That group, which has grown up in a world where instant gratification was always the norm, is challenging much of what has been typical consumer behavior in the past.

For instance, a growing number of teen girls are getting their prom dresses online instead of visiting brick-and-mortar stores. They order four or five dresses that they like online, choose one to purchase, and send the others back, he said.

For e-tailers, such over-ordering is an acceptable cost of doing business, he said.

“The cost of shipping back two or three dresses is a lot,” he said. “But it’s a lot less than renting space at Lenox Square.”

Support real journalism. Support local journalism. Subscribe to The Atlanta Journal-Constitution today. See offers.

Your subscription to the Atlanta Journal-Constitution funds in-depth reporting and investigations that keep you informed. Thank you for supporting real journalism.