View the 2018 Top 100 Retailers here.
Whether it’s a revolution in retailing or just a major upheaval, whatever is happening in the industry belies the remarkable stability among the nation’s leading merchants. The annual snapshot that is STORES Magazine’s Top 100 Retailers has changed very little over the past several years. This year, Amazon.com is ranked No. 3 behind Walmart and Kroger. Last year Amazon was No. 7 and the nine other retailers in the Top 10 remained the same.
Five years ago, Amazon was in 11th place and eight of the Top 10 retailers were the same as this year: Walmart, Kroger, Target, Costco, The Home Depot, Walgreens, CVS and Lowe’s. In 2008, that same solid eight held the top of the chart while Amazon was ranked at No. 25.
These long-term, top-ranked retailers “have done some really smart things to modernize and reinvigorate their strategies,” says Bryan Gildenberg, chief knowledge officer at Kantar Consulting.
They also benefit from retail’s measured pace of change: Merchandise moving through ecommerce accounted for only 9 percent of total U.S. retail sales entering 2018, according to U.S. Department of Commerce figures.
“For all the talk about changes in retail, it will move gradually, not as quickly as people think,” Gildenberg says. “There’s continuous change — there is some instability that is inherent to retail.”
Optimizing omnichannel
While Amazon was leapfrogging its way through the Top 100, the Top 10 stalwarts were blazing new trails.
Walmart expanded its reach into groceries, beginning with its first supercenter in 1988. The intention was to boost foot traffic in stores with a full range of merchandise typically found in supermarkets. Amazon appears to be operating from the same playbook, using its acquisition of Whole Foods Markets 11 months ago to establish itself as a grocery retailer and jump-start efforts to become a true omnichannel retailer.
Working hard to create the template for what it means to be an omnichannel retailer, Walmart is revamping its website to look less like a discount site. It’s “meant to be cleaner and more modern and more appealing,” says Marc Lore, head of Walmart’s U.S. ecommerce business. “It allows us to broaden the assortment we are able to offer.”
Walmart is leveraging its acquisition of Jet.com and Hayneedle.com to offer home goods shoppers a more inspirational experience. Called Walmart Shop by Style, the initiative is “a new digital shopping experience aligned with how customers naturally shop for home products,” says Anthony Soohoo, senior vice president and group general manager for home in Walmart’s U.S. ecommerce unit.
On the bricks-and-mortar front, the company is pruning its Sam’s Club operation, with more than 60 stores already closed this year. Included in the current $11 billion capital budget are plans to build 20 new stores — mostly supercenters and a handful of Neighborhood Markets — and remodel 500 older units.
Combining online selling with physical stores, Walmart is rolling out buy online, pick up in store for grocery purchases to 1,000 locations this year, and adding pickup towers to 500 stores. Customers can retrieve certain online purchases at the orange towers in store parking lots, activated via barcodes sent to customers’ smartphones.
While Walmart and many other retailers employ both home delivery and “click and collect” options, Kantar’s Gildenberg sees these as only the current generation of customer amenities and convenience.
“The next wave will move beyond product to services,” he says. “In 2020, consumers will be spending $2 on services for every $1 spent on goods. I believe retailers will move from rapid fulfillment to assisted replenishment, selling you something before you know you need it — or at least as soon as you know you need it.”
Walmart is also embracing technology in its stores, where it recently completed a test of Mobile Express Scan & Go. While the service has ended, it will continue to be offered at Sam’s Club stores.
Helping customers avoid checkout lines is a trend among retailers “using technology to speed up what shoppers don’t want to go through,” Gildenberg says. It’s all part of “an enhanced retail experience to provide an immersive experience, amplifying the in-store experience.”
Connecting components
Kroger bulked up in recent years with the acquisition of Harris Teeter and Roundy’s; now the company has sold 762 convenience stores in 18 states under banners such as Turkey Hill, Loaf ‘N Jug and Quik Stop to Europe’s EG Group for $2.15 billion.
Focused on the so-called “last mile” of getting groceries ordered online to customers’ homes, Kroger has two versions of buy online, pick up in store: ClickList, at most of its banners, and Harris Teeter Express Lane. The programs are now available at more than 1,000 locations.
On the technology front, Kroger is testing Kroger Edge, which involves digital displays on shelves that provide pricing and nutritional information, video advertising and discount coupons. The pilot program requires shoppers to use handheld devices available in-store, with plans to turn Kroger Edge into an app. Kroger hopes to have this technology in as many as 200 stores by the end of this year.
Kroger runs testing labs as well as a data analytics center dubbed 84.51° which develop apps and store technology based on customer shopping habits. One innovation includes infrared sensors that monitor the number of shoppers and alerts management when additional staff is needed at checkout.
Amazon, the great disruptor of retailing and the company that taught the world how to run an ecommerce business, is now nearly a year into its big jump into bricks-and-mortar retailing. It has been slow in unveiling plans for Whole Foods, focusing initially on connecting existing Prime customers with the supermarket chain. The company, which plans to make Prime the shopper rewards program at Whole Foods, has placed kiosks and pop-up shops selling Echo, Fire TV and Kindle devices inside Whole Foods locations; all the grocery stores have lockers where online shoppers can pick up orders or place merchandise returns.
“This is all about Prime Now. It doesn’t say anything about bricks-and-mortar retailing,” Gildenberg says, “but bricks-and-mortar will still be part of the ecosystem. We’ll see more Amazon acquisitions.”
Amazon also is expanding its program of discounting the cost of Prime membership, which was raised to $119 in June for regular customers. Last year Amazon offered a $5.99 per month Prime membership to anyone receiving SNAP food assistance. This year, Amazon is extending the discounted Prime membership to anyone enrolled in Medicaid — nearly 70 million people nationwide.
Maintaining that fashion apparel is one of its fastest-growing merchandise categories, Amazon is primed to become the country’s largest apparel retailer, projects Morgan Stanley, adding 1.5 percent to its market share last year. Late last year it launched Prime Wardrobe, a service that ships garments and footwear to customers to try on, keep what they want and return the rest.
Enhancing growth
Probably the least internet-savvy of the top 10 retailers, Costco maintains an online presence, though it feels consumers enjoy a better experience shopping in its stores.
“The firm [does] not have to promote items to drive traffic, and its scale and cost advantage are bolstering results,” says John Brick, a retail analyst with Morningstar. “Costco possesses intangible assets in its value proposition for customers.”
The customer response has been positive, says UBS analyst Michael Lasser, citing an in-house report. “Our survey highlights that more than 70 percent of Costco shoppers are very satisfied with the retailer,” he says — a full five points ahead of Amazon’s performance.
Many industry watchers say Costco faces challenges because the wholesale warehouse membership club concept is not particularly attractive to millennial shoppers. Costco hopes to attract the younger generation with the launch of Costco Grocery in conjunction with Instacart: The service provides same-day delivery for a limited number of supermarket items that can be ordered online.
The Home Depot rounds out the top five; along with No. 9 Lowe’s, it has consistently been among those at the top of the chart. Though nuts, bolts, tools and lumber may be their stock in trade, technology is how they sell it. The Home Depot is in the process of hiring 1,000 technology workers as part of an $11.1 billion campaign to enhance technology hubs in Georgia and Texas. Nearly half the money is earmarked for the “One Home Depot” initiative designed to create the optimum omnichannel experience for customers.
Noting that its website attracted 1.8 billion visits last year, Dave Abbott, vice president of integrated media for The Home Depot, says, “A lot of those customers have no intention of buying online, but they want to know ‘How do I get in and out of a store as quickly and painlessly as possible?’ We get a ton of visits to our website, but 93 percent of our sales are still in stores.”
Lowe’s is evaluating new technologies including chatbots and augmented reality.
“Every technology decision is based around what problems or pain points we are solving for customers and/or associates,” says Eric Hanson, director of digital experience and product management for Lowe’s. “We make sure it is rooted in a problem we need to solve … . In our stores, we have 62,000 mobile devices running seven custom-built apps our associates use to assist customers in the aisle.”
Drug store operators Walgreens and CVS, Nos. 6 and 7, are enhancing their standing in the health care industry. “Drug stores are inexorably connected to health care,” Gildenberg says. They will continue to change in order “to become a more obvious part of health care rather than retail.”
CVS made a bold move with its $69 billion acquisition of the Aetna insurance company. Aetna was already CVS’s largest customer, farming out some of its pharmacy benefits management to CVS’s Caremark unit, according to Adam J. Fein, head of the Drug Channels Institute.
The deal “will create a brand-new business model in the U.S.,” says Vishnu Lekraj, a pharmacy analyst at Morningstar. “CVS would then take its retail stores and utilize them not for retail primarily, but for health care hubs.”
Walgreens’ health care initiatives are more store-oriented. Its newest locations offer in-store lab services, optical and a longer list of patient care services, all under one roof. Walgreens has also been in on-again, off-again negotiations to purchase the portion of pharmaceutical distributor AmerisourceBergen that it doesn’t already own.
Walgreens is also testing a new approach in 17 Florida stores. Called Walgreens Plus, the program reduces the number of products available in the store and cuts prices on more than 5,000 products throughout the store. Customers who pay a $20 annual fee receive a 20 percent discount on front-end merchandise and up to 60 percent off prescriptions.
No. 8 Target has been opening smaller footprint stores, particularly in urban cores and other areas with high population density. The company, which acquired grocery delivery startup Shipt at the end of the year, hopes to have as many as 130 of these units in operation by the end of this year.
Holding its ground in the top 10 for the second year in a row, No. 10 Albertsons is hungry for growth. Earlier this year Albertsons, majority-owned by private equity firm Cerberus Management, announced its intentions to buy the Rite Aid drug stores that weren’t among the 1,932 that Walgreens Boots Alliance acquired last fall. The deal would be good for Albertsons; from Rite Aid shareholders’ perspective, however, an unsweetened deal may not go through.