“We need a little Christmas, right this very minute. Candles in the window. Carols at the spinet.” The Jerry Herman song We Need a Little Christmas, from Mame, which debuted 50 years ago, reflects the prayers of retailers like Target Corporation (NYSE:TGT) and Wal-Mart Stores Inc. (NYSE:WMT).
“Christmas creep” means most stores will have their Christmas decorations up as soon as they take down the Halloween masks. In the online world of TGT, WMT and Amazon.com, Inc. (NASDAQ:AMZN), those decorations are already up.
Free shipping, mobile-first sites and online video ads are now just an ante in this high-stakes game, as e-commerce sales are expected to grow 13% and mobile alone up to 60%, to over $12.5 billion.
Retail stocks like TGT stock and Walmart stock that want a leg-up on AMZN are doing just that — seeking any possible advantage. These big merchants can also gain one with exclusive merchandise, things Amazon won’t have, like giant pink princess cars and virtual reality drones.
It’s all a little bit desperate.
The WMT Strategy
Walmart has a reason to be desperate. The growth of Amazon has cut its total share of the retail market to 10% from 11.6% in 2009, as online now represents 10% of the total retail market. WMT’s online sales grew 12% last year to $13.7 billion, and it’s now the second-largest e-tailer, but Amazon sales grew 20% in the same period.
Merely offering free pick-up of online orders wasn’t getting the job done. The pick-up process remains more difficult at Walmart than AMZN, just as I found out last year when I needed an in-car audio solution. It’s unimaginable that this would work on the day after Thanksgiving.
So WMT has bought Jet.Com for $3 billion to bolster its e-commerce operations and is launching a price war.
Jet became interesting to Walmart because it made online shopping fun, offering savings with debit cards and a shopper’s willingness to opt-out of free returns. Some analysts are skeptical of the purchase, but WMT thinks that Jet’s “dynamic pricing” module, which rewards bigger orders with bigger discounts, is perfect for Christmas shopping.
The Target Strategy
Target had a great e-commerce Christmas last year, with sales growing 34% and a successful integration of online ordering and in-store pickups. Industry watchers gave its effort strong reviews, alongside Amazon and Wayfair Inc (NYSE:W), which is another e-commerce unicorn that could also be sold by next Christmas.
But the success came at the cost of margins for TGT stock, and the company’s 2016 strategy is, well, more targeted.
TGT is emphasizing value over mere price this year, and already offering free shipping on Christmas orders. Target is ramping up its e-commerce budget to $2 billion, poaching executives from Amazon and other successful e-tailers and working to improve online cash registers, so they don’t “freeze” at the crucial moment.
Exclusives are also a big part of the plan for bringing in TGT shoppers. Last year, Target featured an exclusive edition of the Adele’s album 25. This year it’s a boxed set of Garth Brooks’ work and a new line of children’s clothes called Cat & Jack, launched last summer under the Brooklyn Bridge.
The key buzzword for TGT stock last year was “omnichannel,” making the process of buying online, or in the store, as seamless and painless as possible. But the key to TGT stock this year will be differentiation, making the online channel do what it’s best at — quick ordering and fulfillment — while having the stores do what they do best — promotions and serendipity.
Can This Work for TGT Stock?
The online and offline shopping worlds are coming together. Amazon is opening stores, WMT is offering deals, TGT is offering focus, and that’s going to continue.
For the brick-and-mortar giants like Target stock and Walmart stock, this is an expensive, unprofitable slog, trying to replicate infrastructure and systems Amazon has already built and profits from. But they feel the pain is necessary if they’re to remain relevant in Christmases to come.
Just remember, when you look at the results, that e-commerce sales for the big merchants aren’t necessarily incremental gains. That’s why I’m still long AMZN and don’t currently have a position in either TGT stock or Walmart stock.
Dana Blankenhorn is a financial journalist and author of the science fiction story Into the Cloud. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing, he owned shares in AMZN.
