Why Amazon should take Target and Walmart seriously
Not a lot other than all things Amazon (AMZN) keeps the Jeff Bezos-led C-suite up at night in Seattle. After all, it’s Amazon — decades long dominator of e-commerce and the cloud.
“Amazon doesn’t worry about anything that anybody else does, ever,” said Jon Reily, e-commerce strategist at Publicis Sapient, on Yahoo Finance’s The First Trade. “Amazon is its own animal, it doesn’t look quarter to quarter or year to year — they do what they are going to do.”
But strong second-quarter earnings results from two old-school retail rivals suggest Amazon better be watching its back.
Holy grail of retail
The overall synopsis from Target’s (TGT) and Walmart’s (WMT) second quarters: Each is beginning to reach the holy grail in modern day retailing. That is by successfully offering a seamless shopping experience both online and in thousands of physical stores, each retailer is able to drive strong sales and profits.
For its part, Target reported Wednesday second quarter adjusted earnings of $1.82 a share, trouncing forecasts for $1.62 a share. Same-store sales rose 3.4%, ahead of estimates for 3% growth. The stock touched a record on the session.
The retailer cited a surge in same-day fulfillment as driving sales growth. Its order pick up, drive up and Shipt services accounted for nearly 1.5 percentage points of Target’s overall comparable sales growth during the quarter. Online sales jumped 34% during the quarter.
A tip of the hat also goes to hundreds of Target store remodels and vastly improved food departments. Both are helping to get people in the door more often — and perhaps shopping less on Amazon.
“So we are seeing our Target guests visit us more frequently, shop more categories. They are enjoying the changes we have made in the store experience, but they are also taking advantage of the convenient fulfillment options that we are offering,” Target CEO Brian Cornell told analysts during a conference call.
Target also hiked its estimates for the third quarter, seeing adjusted earnings of between $1.04 per share to $1.24 per share, better than current expectations of $1.16.
The story was similar at Walmart in the quarter.
Walmart’s earnings beat analyst forecasts by 5 cents on the back of 2.8% same-store sales increase at U.S. stores. Online sales grew an impressive 37% at Walmart U.S. and 35% at Sam’s Club.
The retailer slightly lifted its full-year same-store sales outlook.
“We’re favorably positioned as we leverage our expansive supercenter network to deliver a robust omni-channel experience,” Walmart CEO Doug McMillon said. “More than ever, we’re innovating across the business. We’re experimenting with emerging technologies to improve store operations and reduce friction in our customers’ lives. The initiatives we have underway provide extended access to our brand and position the company to earn a greater share of our customers’ wallet over time.”
The future of shopping
The pool of online shoppers is so plentiful that many retailers stand to prosper, provided they are doing well with online services and offering stuff people want, says Reily. Hard to argue with the size of the internet being a goldmine for well-run retailers for years to come.
But what we are witnessing at Target and Walmart are two well-capitalized companies with their best organizational talent in some time. That talent is moving very quickly — and mostly profitably — to get products and services to consumers faster than ever before. They are anticipating the future of shopping, instead of reacting to it like they have done for decades.
It’s that slowness that allowed Amazon to take root in the United States, well that and the smartphone.
Now it’s time for Amazon to realize Target and Walmart are legitimate threats in large part because they have strategically placed stores and talent that wants to win. For Amazon, the evolving dynamic suggests it will need to get serious about opening brick-and-mortar stores, offering more services and cleaning up its horribly cluttered website.
Brian Sozzi is an editor-at-large and co-host of The First Trade at Yahoo Finance. Follow him on Twitter @BrianSozzi
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