Earnings came and went, and for the retail sector, here’s the bottom line: we’re seeing the market respond to how well (or not) retailers are adjusting to the new reality of mobile-first consumers who shop online and in stores, e-commerce encroachment, and managing the omnichannel transition.
A quick snapshot of Macy’s, Wal-Mart and Amazon.com shows just what the market prizes … and what it punishes.
There’s an Amazon-Sized Standard for Growth
No growth or slow growth? The market takes a dim view of numbers that are flat or declining, especially when there’s a Seattle-based giant whose trajectory is only going up. Macy’s is a great case in point. This past year, the retailer’s sales were just under $26 billion, a decline of nearly 5 percent from 2015’s stellar sales figure of $27 billion. Macy's market capitalization has paid the price: about $9.8 billion down from $19.72 billion in 2014.
Although it’s true that many department store brands are struggling, Macy’s has had some additional issues — e.g., sitting on too many stores until they become liabilities; subsuming the regional brands it's acquired and jettisoning the unique qualities local customers liked; and failing to improve the in-store experience. That’s why if I were Hudson’s Bay, I might think about acquiring Neiman Marcus first — it's forward thinking, investing in technological infrastructure and data analytics. Plus, unlike Macy’s, which offers commoditized products you can get anywhere, Neiman Marcus offers more of a luxury experience, which is typically easier to differentiate.
Wal-Mart is Still Doing a Good Job
The retail landscape is evolving and, consequently, we’re seeing inefficiency being punished much more by the market. However, Wal-Mart is better positioned than most. Despite a bruising year in some respects (most notably, Buffett’s selloff of most of his Wal-Mart stock), the retailer isn't remotely down. In fact, it's pulling in some numbers that show it would be a serious error of judgment to count it out: returning 29 percent in e-commerce sales over the holiday season, for instance, and beating expectations for comparable store sales by 0.5 percent. Wal-Mart also made headlines for announcing plans to add 10,000 jobs this year. Certainly not a huge number, but the market responds favorably to news of expansion.
It’s not going to be easy for Wal-Mart to crush Amazon — its only real competitor — but this is one of the most impressive companies ever created. Wal-Mart made smart decisions as the market contracted, including shuttering stores and renovating others with the savings. Wal-Mart is the godfather of logistics, the standard-setter before Amazon got kudos for its infrastructure. It's thinking about technology in the right way, with the recent acquisition of Jet.com and a significant Silicon Valley presence. If sailors are made in rough waters, then Wal-Mart was built to weather storms — and it just might find calm waters yet.
Amazon Hasn’t Peaked — and the Market Knows it
Amazon isn't even close to hitting its high point; it’s continuing to enjoy an impressive trajectory despite now being over the $100 billion revenue mark. Its 2016 holiday season was its best ever; it shipped over 1 billion items through its Prime and Fulfillment by Amazon services. Amazon is expanding into brick-and-mortar because the company gets that nine of 10 retail dollars are spent in stores (and wants its share and then some). It’s experimenting with headline-driving store models like Amazon Go, which illustrates the importance of omnichannel thinking in retail. In brief, Amazon’s making very few missteps.
Detractors in the past have largely been wrong. We remember, for instance, the heat Amazon took for not being profitable. What was the company doing? Putting extra cash in warehouses and building up the incredible logistical infrastructure that really differentiates Amazon to consumers. In hindsight, you can almost imagine Jeff Bezos rolling his eyes and saying to the market, “I GOT THIS.” Sure enough, that investment has decreased Amazon’s reliance on third parties, a market-pleasing move that eliminates risk and cost. The lesson for all of us is not to underestimate Amazon’s ability to intelligently invest in itself to better get product to market. In general, the online retailer's incredibly forward thinking in virtually every aspect of its business.
The retail market is going through a profound shift as old models and metrics become obsolete. The ones best prepared to navigate these rougher waters are those that can deliver the best of both online and offline channels to their customers. Amazon’s doing this well, but other retailers should take note (and heart): the company doesn’t have to be the only one.
Brent Franson is the CEO of Euclid Analytics, a company that provides visitor insights to power personalized experiences, long-lasting loyalty and online-to-offline attribution.