Which Retailers Are Leading the Digital Race?

NEW YORK (TheStreet) -- Every traditional retailer fears the same thing: Amazon (AMZN). But some companies are pushing back against the e-commerce giant with so-called omnichannel strategies and doing a fine job at it. Others, not so much.

"Most retailers are pursuing omnichannel initiatives to make the shopping experience more convenient for their customers, but in many cases these initiatives are required to keep up with the pure play etailers," according to Wells Fargo Securities analyst Paul Lejuez in a note to clients on Friday. "Bricks and mortar retailers are trying to use the primary advantage they have over pure pay etailers -- the ability to go to a physical store -- either to get a product same-day, to see the product in person, or to more easily return an item. But in many cases, it is a game of catch-up for the bricks and mortar group."

Gap (GPS), Nordstrom (JWN), The Container Store (TCS), and Urban Outfitters (URBN) are seen as leaders in the retail digital space, Lejuez wrote. Others, such as Aeropostale (ARO), Kohl's (KSS) and Target (TGT) have more work to do, the note said.

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Lejuez and his team asked retail companies under their coverage list which digital initiatives have been implemented from a list of nine capabilities. Those initiatives included: find in store; reserve online, pick-up in store; purchase online, pick-up in store; buy online, ship from store; single view of inventory; store credit for [e-commerce] sales; mobile inventory check/order instore; interactive e-commerce ordering from store; and associate mobile checkout.

TheStreet's Laurie Kulikowski has details on the retail winners and losers:


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Much talk has been made in the retail world about Macy's (M) aggressive adoption of omnichannel strategies, however "department stores are generally ahead of the game, but perhaps this also reflects the pressure they feel from online retailers who in many cases sell similar products/brands," the note said. "In the specialty world we believe URBN is near the top, perhaps given the large size of their direct business, GPS is also fairly advanced with its initiatives (we believe CEO Glenn Murphy has made this a priority)."

That said, Kohl's "seems to be moving quickly to upgrade its omnichannel capabilities," while Walmart (WMT) and Target have moved their digital strategies up in the priority list "as they aim to leverage their store assets (the obvious gap in Amazon's arsenal) and play catch up," the note said.

The note pointed out that teen retailers, particularly Aeropostale, seem most behind. Those in the teen retail space may have felt that investing in omnichannel initiatives was "less pressing" since merchandise cannot be bought elsewhere. That said "it is precisely their teen customer that is likely to be most current on everything related to [ecommerce] and to expect up-to-date mobile/ecom capabilities when they shop," Lejuez wrote.

Omni-what?

"Omnichannel means one channel or all channels," that refers to the "seamless, consistent experiences that retailers are trying to give customers, regardless of how many channels they're running in the background," IDC senior research analyst Miya Knights told TheStreet in a recent phone interview. "Love it or hate the term, it comes to represent the way that retailers would like to operate and ... engage with customers."

Knights said the term is an extension of the multichannel term that retailers began referring to about 10 years ago to incorporate both in-store sales and the growing category of e-commerce. Add in the small but growing category of mobile commerce and it leads to a complex operating system that retailers must figure out in order to win today's consumer, she said.

"It's a real challenge for them because they have historically operated channels in silos," Knights said. However, "the consumer, at the end of the day, doesn't distinguish between Macy's online or Macy's in store."

Winning the race

One of the basic features that many retailers have already rolled out is allowing online shoppers to view whether a particular item or size is in stock at their local store. "This takes the guesswork out of whether what you want is available before heading to the mall, thought there is no guarantee it will still be there when you arrive as some retailers are unable to update store inventory real time online," the Wells Fargo note said.

Gap has this rolled out at for its three biggest brands, which include Old Navy and Banana Republic. Specialty retailers like Urban Outfitters, American Eagle Outfitters (AEO), Abercrombie & Fitch (ANF) and Ann Taylor (ANN) (at its full-price brands) are other examples of retail companies that have rolled the feature out. Department stores like Macy's, J.C. Penney (JCP), Nordstrom and Kohl's for the most part have rolled out this option for customers.

But where many retailers fall short is specifically matching their supply chain and inventory to offerings via online in a feature called "buy online, ship from store."

The feature "effectively decentralizes the fulfillment process, allowing any store to become a small shipping hub," Wells Fargo said. "More localized shipping can also be more cost effective and create faster shipping windows, which is important in the content of competing with Amazon, who doesn't always have a the advantage of being close to the customer with a fulfillment center."

"Furthermore, when the system is working at its best, planners and allocators can move inventory gluts out of stores via the ecom channel and theoretically reduce markdown rates. That said this initiative can be difficult to implement given the picking and packing labor in stores, and other nuances of shipping from individual orders direct to consumers vs. the typical retail distribution model of truckloads from warehouses to stores.

Gap's flagship and Banana Republic stores are nearly fully able to do ship from stores (Old Navy is about half way there). Urban Outfitters, Nordstrom and Dick's Sporting Goods (DKS) are the only other retailers surveyed by the analysts that are fully operational in this regard, according to the note.

Best Buy (BBY) spent a significant portion of its last earnings call in May talking about its growing ship-from-store service. The service, which has now been rolled out at all 1,400 stores, is helping the company's online sales and improve margins as it looks to clear out inventory from its stores, particularly "end-of-life" items. Those products have a better chance at selling, even at clearance prices, due to exposure to the larger online customer base versus traffic from a single store.

"In ship-from-store the amount of inventory that has actually been unlocked represents about two-thirds of our inventory," CFO Sharon McCollam said during the conference call.

"We have already seen margin benefits, which was delivered in today results through the utilization of ship-from-store and we expect that to continue to grow," McCollam said in May.

Mobile still slow

Another area where retailers need help: allowing store associates to have mobile/handheld point-of-sale devices that allow them to look up inventory and check out customers from anywhere in the store. Apple (AAPL) is the poster child for mobile checkout at its retail stores, but mass merchants and specialty retail stores have been slower to catch on.

Lululemon (LULU) and Urban Outfitters are the only two specialty stores, according to Wells Fargo, that are fully able to do this (with the function rolled out at more than 75% of LB Brands' (LB) Victoria's Secret and Bath & Body Works).

Ironically department stores Nordstrom and J.C. Penney top the list as mobile functioning with Kohl's planning to be there in 2015, the note said.

-- Written by Laurie Kulikowski in New York.

Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.

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