While Walmart Stores Inc. (WMT - Get Report) is intent on boosting its e-commerce business to combat Amazon.com Inc. (AMZN - Get Report) , Target Corp. (TGT - Get Report) is focused on bricks-and-mortar. Is that its wisest decision?
"Despite the rapid growth that we're seeing online, as we all know, the majority of retail shopping in America still takes place in a physical store," Brian Cornell, Target CEO and chairman, said on a call with representatives from the media on Wednesday, Aug. 16, after the big-box retailer reported a better-than-expected second quarter.
Cornell's statement is true today, but retail experts believe it's more prudent and profitable to take the long view. One-fifth of the $3.6 trillion retail market in the U.S. is set to shift online over the next five years, Stacy Mitchell, co-director of the Institute for Local Self-Reliance, and co-author of "Amazon's Stranglehold," told TheStreet. Amazon is already on track to capture two-thirds of that enormous share.
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Target is now remodeling 110 of its 1,802 stores, to be completed at the end of this year, and, on Monday, the retailer announced its plans to acquire Grand Junction, a transportation tech company, for an undisclosed amount. Target said the purchase allowed it to now expand its same-day shipping tests throughout New York City and its next-day delivery service, Target Restock, in the Denver and Dallas markets.
Walmart, on the other hand, has taken a different approach to growth. The discount giant has been on a recent acquisition frenzy of online apparel retailers that began with its $3.3 billion purchase of e-commerce company Jet.com in August. Walmart's acquisition of Jet.com helped it boost online sales by 63% in the first quarter and allowed it to begin testing same-day shipping and upgrade its stores with futuristic enhancements, such as launching an automated pickup tower, which creates a seamless way for customers to retrieve small packages.
In response to a question from TheStreet on Wednesday's call, Cornell said that Target decided to buy a tech company to improve its supply chain, rather than take the Walmart route of adding online retailers to its stable.
"We know some days our customers are going to shop in stores, some days they're going to order online, some days they're going to come in and pick up when it's convenient for them. Some days they're going to ask us to simply put their packages right in their trunks in their neighborhood and some days they'll want us to deliver directly to their homes," Cornell said in response to TheStreet's question. "We want to make sure we have the capabilities and technology to meet the needs of Target's guests, no matter how they choose to shop."
Target has also began testing a pickup delivery service in which its employees deliver packages to customers' cars.
Still, some analysts, including John Zolidis, president of Quo Vadis Capital Inc., question if Target is doing enough in the e-commerce space.
"Last quarter, we wrote that better-than-expected first-quarter results were probably not enough to change investors' views of the company, most of whom had written it off as yet another big box retailer laying down in front of the Amazon steamroller," Zolidis said. "We remain concerned about the threat from e-commerce competition, including declining traffic trends to terrestrial retail, but we believe Target is likely to be a retail survivor."
Last week, Wall Street saw a wave of disappointing retail earnings reports from Macy's Inc. (M - Get Report) , J.C. Penney Co. Inc. (JCP - Get Report) and Kohl's Corp. (KSS - Get Report) , all of which have focused, too, on bricks-and-mortar.
Before the market open on Wednesday, Target reported second-quarter earnings of $1.23 a share on revenue of $16.4 billion, higher than Wall Street's estimates for earnings of $1.19 a share and revenue of $16.27 billion. The retailer's same-store sales rose 1.3% in the quarter, helped by a surprising 2.1% lift in traffic. Comparable online sales grew 32%.
Meanwhile, investors are anxiously awaiting Walmart's second-quarter earnings release, set for Thursday, Aug. 17. Barclays analyst Karen Short wrote in a recent research note that she expects Walmart's second-quarter online sales to be just as strong as they were in the first quarter.