View the 2019 Top 100 Retailers here.
Retailing encompasses more today than it ever has before. A year from now it will encompass even more. Whatever the future may hold, the present is still dominated, at least in terms of sales, by retailers with a bricks-and-mortar heritage: Bricks-and-mortar accounts for about 90 percent of total sales.
Stability is reflected in the first 10 positions on STORES Magazine’s annual Top 100 Retailers list: The companies are the same as they were last year, with the only changes being six of them moved up or down a notch in swapping positions with each other.
No. 2 Amazon.com’s retail business is nowhere near as large as No. 1 Walmart’s, but Amazon is easily the most disruptive and influential force in the retail industry. The company sells merchandise from all manner of vendors and suppliers, via both online commerce and through a variety of physical stores. Amazon also provides a digital marketplace for unaffiliated retailers to sell their wares.
In addition, Amazon retails non-tangible goods and services, including electronic books and publications, digital music and videos, and streaming entertainment, much of which is proprietary. Where do private-label movies fit on the retailing spectrum? And what will be considered retailing on next year’s Top 100 list?
Personal shoppers have gone from being mainstays at tony clothing emporiums to a business model for Instacart and upstart Dumpling. Where do Lyft, Uber Eats and similar services fit?
“If I am providing a service and only a service, I am an intermediary,” says Dave Marcotte, senior vice president of cross industry, cross border and technology at Kantar, and one who feels the definition of a retailer is being unnecessarily broadened in some circles.
It’s completely understandable that retailers are providing more services, Marcotte says. “The markup on merchandise is typically 20 percent to 25 percent, while on services it’s more like 40 percent to 50 percent. If I’m in retail, I might want to go where I’m going to make money,” he says.
It’s a similar story with remodeling stores versus opening new ones. “Most retailers are shy about opening new stores, but they will remodel so they can provide new services,” Marcotte says.
Walmart has undertaken a number of initiatives to assure it remains king of the retail hill.
“We’re spending more and more on remodels,” Walmart’s CFO Brett Biggs told Wall Street analysts recently, including retrofitting 500 stores this year with brighter lighting, wider aisles and self-checkouts, duplicating its remodeling efforts last year. The company is also testing such things as store-cleaning robots, installation of interactive displays and using artificial intelligence to help monitor stock levels on store shelves.
As for the notion that Walmart is forever chasing Amazon in an evolving retailing world, Marcotte says, “Three or four years ago it was head-to-head. Now Walmart is more confident doing what they are doing. Except for groceries and seasonal items, Walmart is comfortable being the alternative.”
Regarding Amazon’s retail initiatives, the company is moving in several directions at once. In bricks-and-mortar, there are plans for a new supermarket concept outside the boundaries of Whole Foods Market to be launched in the Los Angeles area. Online, Amazon is cutting back on sales to consumers in favor of allowing third-party Marketplace vendors to handle those chores. Those outside merchants now account for 58 percent of the retail sales on Amazon’s website, up from about 30 percent 10 years ago. In addition, third-party merchants allow Amazon to cut expenses by not having to invest as much in inventory. Amazon also collects a fee from Marketplace sellers while reducing its risks of stocking slow-moving merchandise.
As a corporate entity, most of Amazon’s profit comes from its other business, notably Amazon Web Services cloud computing and advertising. While the retail business continues to grow, the rate of growth is slowing down. That’s one reason the company planned to spend $800 million in the second quarter of this year to boost its retail business, including faster delivery to customers.
“This is all about the core free two-day offer evolving into a free one-day offer,” says Brian Olsavsky, Amazon’s CFO. “We think that will open up a lot of potential purchases and convenience to those customers.”
Amazon initiatives are aimed at its Prime subscribers, who pay $119 each year for an annual membership fee. In addition to faster delivery, benefits include streaming television and discounts at Whole Foods Markets.
Amazon is estimated to have more than 100 million Prime members, who tend to be the retailer’s best customers: Non-Prime members spend about $600 a year on Amazon’s website, says Consumer Intelligence Research Partners, while Prime members averaged about $1,400 in purchases last year.
DATA, PEOPLE FIRST
No. 3 Kroger, the nation’s leading traditional supermarket operator, has been embracing big data and technology for a number of years, first with its alliance with number cruncher dunnhumby and more recently with British automated grocer Ocado Group. Kroger invested a reported $250 million in Ocado last year, and now the two are ready to open the first of about 20 automated warehouses around the United States to handle online grocery services.
Kroger says it has spent hundreds of millions of dollars on its online operation, including expanding store pickup locations for online order and grocery delivery service. Along with others, it’s also working on driverless technology and experimenting with autonomous grocery delivery; Kroger currently works with Instacart delivery service at about 1,600 locations.
Kroger is also working on an app for mobile devices that will allow it to communicate directly with customers’ phones. Inside stores, Kroger Edge is a digitally enabled shelf that communicates directly with shoppers through LED displays.
“We are transforming from grocer to growth company by deploying our assets to serve even more customers and create margin-rich alternative profit streams,” says Rodney McMullen, Kroger chairman and CEO, in discussing the retailer’s plans for this year.
No. 4 Costco doesn’t draw a lot of attention to itself in retail circles. A major plus for the company is that consumers love to shop at its stores. As CFO Richard Galanti says, foot traffic in the stores is “as strong as it’s ever been.”
That helps explain why Costco has been slow to develop its online channel, though its ecommerce has been growing by double digits in the past few quarters.
Costco prides itself on a people-first culture, which includes a minimum $15 starting wage for new employees. “People are happy with a job for more reasons than money,” says Jim Sinegal, co-founder and former CEO who stepped down from the board of directors last year. “There’s generally a pride in the organization. There’s an attitude that there’s security, that somebody cares about them, that we’re offering careers. We’re not offering jobs, we’re offering careers.”
That positive environment touches customers — Costco earned the top spot in the latest American Customer Satisfaction Index, dethroning Amazon, which had held the No. 1 spot since 2010. “Costco is the value leader among online retailers and its Kirkland brand may be part of the reason why, offering quality products at a lower price,” said ACSI in announcing the award.
Pharmacy chains Walgreens and CVS hold down the fifth and seventh positions on the Top 100 chart; both have been buffeted of late as a result of the volatility enveloping the health care industry. The retailers are currently focused on increasing the speed of prescription medication home deliveries.
Disrupter Amazon pops up here too: About a year ago Amazon acquired PillPack, an online pharmacy services firm that sorts, packages and delivers medications to patients’ homes. This spring, Amazon offered its Prime members monthly deliveries of prescriptions to treat chronic conditions such as high blood pressure and diabetes.
CVS quickly launched a delivery service where 80 percent of medications are delivered the next day, the rest within a two-day window. Walgreens joined with FedEx last December to initiate its Express next-day delivery service, and CVS raised the bar by offering same-day deliveries of prescriptions — and much front-end merchandise — via Shipt for a $7.99 service charge. Next-day or two-day deliveries can be had for $4.99.
CVS and Walgreens are also enhancing in-store medical services. CVS, which has about 1,100 of its corporately owned MinuteClinics in its locations, refers to its enhanced units as “health hubs.”
“It’s bringing more health services to a more convenient location that doesn’t disrupt your day and has a consumer bent to it,” says Alan Lotvin, CVS’s chief transformation officer.
With medical clinics operated by local or regional healthcare providers in about 400 locations, Walgreens calls stores with bulked-up medical services “neighborhood health destinations.” “It’s clear that the drug stores that we are used to knowing will not be the stores of the future for sure, so we have to change that,” says CEO Stefano Pessina.
No. 6 The Home Depot took a hit to start 2019 when the wet weather put a damper on building projects. The retailer still has high hopes for this year based on strong consumer spending and an improving housing market, says CFO Carol Tomé, who will be retiring in August after 24 years with the company.
Technology plays a large part in the company’s success, in part because of its use of mobile apps and other digital means of courting professional customers. It added 100,000 professional customers to its business website last year and is aiming to add 1 million more this year. Once orders are made online or with the app, the merchandise can be delivered to worksites and, in select locations, picked up at an interactive locker. The Home Depot is spending some $1.2 billion to add 170 of these smart distribution centers around the country.
No. 8 Target is in the sixth year of its drive to open smaller footprint stores without eliminating any of the departments found in its larger units. The company is looking to open 30 of these locations this year in urban markets.
Target is also doing work on its older and larger stores as part of a plan to redesign 1,000 stores by the end of next year. One component is a section of grab-and-go food items called the Snack Bar, which will include a dedicated self-service checkout kiosk, part of Target CEO Brian Cornell’s vision to make Target “America’s easiest store to shop.”
“I think Target’s aspiration of reducing shopper friction is on the right track,” says Mark Ryski, CEO of business analytics firm HeadCount. “Traditional approaches of making customers wind through long lines or increase dwell times in order to capture another add-on sale are antiquated. Some shoppers simply want to get in and get out, and this new initiative delivers on this.”
At No. 9, Lowe’s is benefitting from new CEO Marvin Ellison, who took over the reins after leaving J.C. Penney last summer. His next moves are aimed at raising sales and productivity per square foot, and the efforts are being noticed on Wall Street. “It shows how early restructuring efforts (e.g., exiting certain business lines) should already start to narrow the margin gap, by reducing costs and select operating losses,” wrote Credit Suisse analyst Seth Sigman in a research note. “Ultimately, the pruning at Lowe’s and refocus on the core store base should position the company for improving profitability, assuming demand trends hold up.”
Rounding out the Top 10 is grocery conglomerate Albertsons, which is all about using technology to improve the customer experience. The company is using Microsoft cloud capabilities to shorten waiting times at butcher and deli counters, at checkout and even outside the store at the gas pumps. AI is used to anticipate out-of-stock situations and detect items misplaced on shelves.
“We are reimagining the future to serve customers in a way they want to interact with us across all channels,” says Anuj Dhanda, executive vice president and chief information officer at Albertsons.
Albertsons has also unveiled its prototype “next generation” store just down the street from its Boise, Idaho, headquarters. “The culture of this store is unique, focusing on creating a food experience through expertise, demos and education,” says John Colgove, head of Albertsons’ Intermountain Division, “from hard-to-find ingredients and prized local foods to cooking classes and live events.”
David P. Schulz has been writing for STORES since 1982 and is the author of several non-fiction books.