The Amazon Effect   /   May 22, 2019

In an Amazon vs. Walmart world, big-box retailers plot their futures

It’s earnings week, and retailers are dealing with a universal truth: It’s sink or swim in an industry increasingly dominated by Amazon and Walmart.

The key takeaways:

  • Kohl’s underperformed on expectations: Comparable store fell by 3.4% this quarter, causing the company to change its forecasts for the rest of the year.
  • JCPenney is still sinking: Comparable stores fell 5.5%, but this was more expected than Kohl’s. The company has been losing customers as it cuts underperforming inventory and pulls back on promotions.
  • Nordstrom’s net sales decreased by 3.5%, which the company blamed on a botched digital-only revamp of its loyalty program, the Nordy Club, aligned with reduced marketing spend and underperforming merchandise in women’s apparel and beauty.
  • The Home Depot saw sales increase by 5.7%, which it attributed to faster online delivery.
  • TJMaxx also saw sales increase by 5%, with its digital business in the U.S. and U.K. helping to bolster sales. However, CEO Ernie Hermann said not to expect a Marshalls.com launch later this year, as was previously reported by the company.

It was a bumpy start to the year. Big-box retailers are competing in a landscape dominated by Amazon online (although it’s making progress in offline retail, too) and, increasingly, Walmart offline. The bar is continuously being raised on expectations around delivery windows and options, customer experience and interesting inventory. The industry is seeing through a shakeout, as nearly 12,000 stores could close this year, and many are caught in a catch-22: Cash-strapped retailers need to improve stores, make new hires and offer new perks to customers, but that costs money they don’t have as sales fall.

“When it’s Walmart vs. Amazon, the loser is the other retailers,” said Jon Reily, the vp of global commerce strategy at Publicis Sapient. “Unless they put up a real fight.”

But not everyone is failing, and common threads in strategies have emerged across the board that will play a visible role in the industry’s re-righting.

Appealing to new, lucrative audiences is key.
To gain ground, Home Depot is targeting its “pro” customers (professional carpenters, landscapers, etc), looking to increase that business over its “DIY” customers (regular people). To do so, it’s built a new B2B platform for professionals to manage their inventory supplies, and invested more in a rental service for tools — CEO Craig Menear said that one in four professionals now rent their tools with the company. Kohl’s, meanwhile, is latching onto Amazon in order to bring untapped markets into its stores, particularly younger people. Read more on that strategy here.

Store locations are becoming increasingly critical to driving online conversions.
E-commerce strategies that exist in a vacuum are a thing of the past. JCPenney’s strategy has been to free up store floor space of slow-moving inventory and under-performing categories (like appliances and furniture), and adding a centralized pick-up and return areas to 500 locations. Home Depot’s found that 54% of online orders are picked up in stores. In the U.K., where TJMaxx has rolled out click-and-collect, it accounts for 50% of online orders. Nordstrom, meanwhile, is building its online delivery strategy around a plan to locate the available inventory that’s closest to the customer who purchased it, and ship it from wherever that is, be it a store or a fulfillment center.

Promotions are a trap.
That’s a fight no retailer can win against Amazon and Walmart’s competitive prices, and retailers are learning the hard way. Kohl’s comparable store sales fell by 3.4% this quarter, changing the company’s forecasts for the rest of the year. CEO Michelle Gass attributed it to a combination of factors — the weather, an underperforming home category — including underperforming promotional events. Nordstrom saw sales drop in the beauty category, which had been a strong performer over several quarters, thanks to poorly planned promotions. Trying to beef up sales with cut prices is an increasingly losing strategy. Just look at JCPenney, which is still grappling with the loss of one-third of its customers after it cut its promotional calendar. — Hilary Milnes

3 Qs with Jenny Fleiss, Jetblack founder and CEO
Jetblack, the text messaging-based concierge shopping service, opened a pop-up store this week in SoHo to show a selection of summer-themed products available to shop through the service, and picked by founder Jenny Fleiss and the merchandising team, to members (Jetblack costs $50 a month for access). The pop-up, which closes this week after a 10-day run, is the Walmart-owned company’s first push into physical retail, a channel that’s become a natural next step for online retailers — even ones that are based on texting.

For Jetblack’s pop-up, all inventory was tagged with a code to text to the company’s concierge service, after signing up with a credit card. All purchases made at the store were done via text, to be delivered to the customers by the next day.

Fleiss shared the strategy behind expanding offline.

What purpose does a physical store serve for a company like Jetblack?
When you’re introducing a new way to shop to people, being able to explain the service and answer questions and take them through a retail store is really powerful. The store is a place where we can show people how easily a typical shopping experience can translate to text. So teaching people about the service and the many ways to use it is the purpose.

We have such a wide range of products to shop through the service that you can’t see when you’re trying to tailor it to your needs — you can really buy paper towels and designer handbags. We have a huge price range, and we cater to a broad spectrum of customers’ everyday life. To have that curated in one place really drives the point home. It’s about introducing the level of convenience to customers — you can buy things at the shop and have them delivered directly to your vacation destination, for example.

What role did customer data from existing members play when putting together the store?
We are always learning from our members. We have an engaged group of members who are very discretionary about the brands they buy, so we pulled brands and trends from there, and commissioned some exclusives from those designers. We also looked at member data and the top brands our members were shopping from and reached out to those brands to get them to participate, like Saks, Snowe, Supergoop and Culinistas. Those brands are naturally part of our members’ lives. We also heard from them that they wanted a space like this. Being a member is more than the service, it’s the community and it’s about benefiting from events like this.

Will physical retail play a more permanent role in Jetblack’s strategy in the future?
It’s unlikely we would do permanent retail. But we plan to do pop-ups, events, collaborations and partnerships around key moments in a customer’s life, and to help them train in new ways to use the service. Maybe you shopped with us for everyday items but never explored gifting, we’ll put together a pop-up around gifting holidays. If you shop for kids’ toys, but didn’t know you could buy a $1,000 handbag, we want to show you that. Anchoring around the moments where we know our customers are super time-strapped and we can be there to both inspire them and save them time is our goal with physical retail. — Hilary Milnes

How 3D design platform Modsy works with furniture retailers
Modsy, a combination 3D interior design service and furniture marketplace, announced yesterday that it has raised $37 million in venture capital funding. Modsy employs hundreds of designers, a combination of both full-time employees and contractors, who create custom 3D design plans for customers.

To receive a customized design plan, customers must first take photos of a room in their house or apartment that they’d like to redesign, as well as a style quiz where they give details about what kind of furniture they’d like and their budget. The custom design plans are shoppable, so customers can click on a piece of furniture they like in their plan to purchase it, and checkout through Modsy. The order is then fulfilled by the retailer.

The company said it will use the funding to continue to build out its marketplace, and invest in technology that will help it automate more of the design and 3D rendering process. Modsy doesn’t say exactly how many furniture retailers are in its marketplace, but most of the well-known furniture brands in the U.S., including Wayfair, West Elm, Crate & Barrel and Pottery Barn all have products available for purchase through Modsy.

Here’s how the company is positioning itself in a competitive category.

Modsy’s pitch to retailers: CEO and founder Shanna Tellerman said that Modsy takes care of the “heavy lifting” of integrating a retailer’s SKUs into its catalog, classifying the products by style — what is modern, what is rustic, etc. — and also has a universal order management system where customers can track orders they’ve placed with multiple retailers. Tellerman said that some furniture retailers has also paid Modsy to create 3D models that they can use themselves.

The data play: Tellerman said that right now, Modsy doesn’t share purchasing trend data with retailers, but that it’s something that they are looking at doing in the future. “We wanted to make sure that we are at a point scale-wise where the data was statistically significant and interesting, Teller said.” One new feature that’s given Modsy a treasure trove of data is called Live Swap, which the company released in November, and allows customers to swap out a recommended piece of furniture in their custom design plan for another.

Modsy is also using customer data to create its own furniture. In March, it released its first such line, a series of sofas and chairs. Tellerman said that while that the company is looking to create more lines, “only when it makes sense,” and that it’s not Modsy’s biggest focus. — Anna Hensel

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