• Advertise
  • Contact Us
  • About Us
  • Supplier Directory
  • SCB YouTube
  • Login
  • Subscribe
  • Logout
  • My Profile
  • LOGISTICS
    • Air Cargo
    • All Logistics
    • Express/Small Shipments
    • Facility Location Planning
    • Freight Forwarding/Customs Brokerage
    • Global Gateways
    • Global Logistics
    • Last Mile Delivery
    • Logistics Outsourcing
    • LTL/Truckload Services
    • Ocean Transportation
    • Rail & Intermodal
    • Reverse Logistics
    • Service Parts Management
    • Transportation & Distribution
  • TECHNOLOGY
    • All Technology
    • Artificial Intelligence
    • Cloud & On-Demand Systems
    • Data Management (Big Data/IoT/Blockchain)
    • ERP & Enterprise Systems
    • Forecasting & Demand Planning
    • Global Trade Management
    • Inventory Planning/ Optimization
    • Product Lifecycle Management
    • Sales & Operations Planning
    • SC Finance & Revenue Management
    • SC Planning & Optimization
    • Sourcing/Procurement/SRM
    • Supply Chain Visibility
    • Transportation Management
  • GENERAL SCM
    • Business Strategy Alignment
    • Education & Professional Development
    • Global Supply Chain Management
    • Global Trade & Economics
    • HR & Labor Management
    • Quality & Metrics
    • Regulation & Compliance
    • SC Security & Risk Mgmt
    • Supply Chains in Crisis
    • Sustainability & Corporate Social Responsibility
  • WAREHOUSING
    • All Warehouse Services
    • Conveyors & Sortation
    • Lift Trucks & AGVs
    • Order Fulfillment
    • Packaging
    • RFID, Barcode, Mobility & Voice
    • Robotics
    • Warehouse Management Systems
  • INDUSTRIES
    • Aerospace & Defense
    • Apparel
    • Automotive
    • Chemicals & Energy
    • Consumer Packaged Goods
    • E-Commerce/Omni-Channel
    • Food & Beverage
    • Healthcare
    • High-Tech/Electronics
    • Industrial Manufacturing
    • Pharmaceutical/Biotech
    • Retail
  • THINK TANK
  • WEBINARS
    • On-Demand Webinars
    • Upcoming Webinars
    • Webinar Library
  • PODCASTS
  • VIDEOS
  • WHITEPAPERS
Home » Pain for Gain? Retailers Chasing Amazon Are Testing Investors’ Tolerance

Pain for Gain? Retailers Chasing Amazon Are Testing Investors’ Tolerance

Pain for Gain? Retailers Chasing Amazon Are Testing Investors’ Tolerance
November 19, 2018
Bloomberg

For many U.S. retailers, sales growth is back. But it’s coming at a cost.

Companies from Walmart Inc. to Macy’s Inc. have made heavy investments to keep pace with the likes of Amazon.com Inc. It showed in the retailers’ bottom line last quarter, sending shares slumping despite strong sales.

“It’s short-term pain for long-term gain for these retailers. That’s the mantra,” said Neil Saunders, managing director of GlobalData Retail. “There’s a lot of cost pressure on retailers at the moment,” he said, pointing to the need for more labor, store refurbishments and of course, the all-important shift to online.

Taking on Amazon — and its two-day delivery model — doesn’t come cheap. In order for old-school brick-and-mortar stores to go digital they have to build out logistics, determine warehousing, manage functions to cope with the online demand and figure out fulfillment plans.

Investors were willing to tolerate such expenses this year as long as they showed quick results amid robust consumer spending in an economic boom. Now shareholders of big retailers are beginning to wonder if the heavy investments will be sustainable when demand inevitably subsides.

‘Massive Battle’

“Online often isn’t as profitable as selling in the store. There is a massive battle to give free or discounted delivery to customers,” Saunders said. “So not only is the spending on fulfillment going up, but retailers are making a lot less money because of shipping and handling fees.”

Walmart, the world’s largest retailer, saw its third-quarter profit margin squeezed as it pumped money into building out its online unit, which is still in the red. The retailer’s 3.4 percent gain in comparable sales — a key performance metric — did beat Wall Street’s estimates. But it wasn’t enough for investors, who sent the shares lower after the results. With five consecutive declines, Walmart’s stock saw its worst week in almost nine months.

The stock decline echoed a similar reaction to Macy’s better-than-expected sales the day before. After an initial gain, the department-store chain sunk 5 percent over concerns over the gross margin.

Macy’s has been pushing promotions and in-store pop-up shops while also delving into virtual reality and investing in its e-commerce business. It now expects to hit $1bn in mobile sales this year.

There’s skepticism about Macy’s ability to return to strong earnings growth as it balances its investment with efforts to improve its balance sheet, RBC Capital Markets analyst Brian Tunick wrote in a Nov. 14 note.

“Investors do not seem excited enough,” said Tunick, who rates the stock sector perform.

Over at Nordstrom Inc., digital sales now make up 30 percent of the total. In the third quarter, delivery and logistic expenses contributed to compressed margins at the department-store chain.

Creative Initiatives

The retailer has been one of the more creative department chains, experimenting with initiatives including a men’s store that also allows in-store pickup at any hour, even if the store is closed. Same-store sales rose for the fourth straight quarter, although the 2.3 percent gain fell short of estimates.

Shoppers aren’t as interested in the company’s full-price chain, instead mostly flocking to the discount Nordstrom Rack chain, where sales rose a better-than-expected 5.8 percent. The stock sank 13 percent after the results, and RBC’s Tunick cut his price target by $2 to $60.

Nordstrom’s position relative to peers has historically been seen as enviable, according to Tunick, thanks to the variety of its store formats and ability to innovate. But recent quarters started to put into question its ability to ride industrywide challenges, he said.

That pessimism was reflected in the company’s share decline on Friday. The stock plunged as much as 16 percent, the most intraday in more than two years.

Holiday Season

Don’t expect the pressure to let up anytime soon. With holidays around the corner, stores have to ramp up staffing — and in the tight labor market, that talent comes at price. The new year may bring with it higher tariffs against China and added costs if supply chains need to be revamped. Not to mention, there’s rising gas prices and higher transportation costs. Even amid a robust economy and strong consumer confidence, these pressures can weigh heavily on a traditional retailer.

J.C. Penney Co. may be in the worst state of all. Sales have been dismal at the struggling department-store chain, which has ramped up discounts to get rid of unwanted inventory. While the recent appointment of a new chief executive after months of searching was seen as a positive, there are still some real challenges ahead for J.C. Penney, said Saunders of GlobalData Retail.

“It has to almost go through more pain to in order to come out the other side as a streamlined business,” he said. “Whereas a company like Macy’s has already taken some of these harsh decisions — it’s shut stores, it’s reduced inventories, so it’s taken these corrective hits — J.C. Penney hasn’t really started doing that yet."

RELATED CONTENT

RELATED VIDEOS

Supply Chain Finance & Revenue Management Technology Business Strategy Alignment All Warehouse Services Order Fulfillment E-Commerce/Omni-Channel Retail
KEYWORDS All Warehouse Services Business Strategy Alignment E-Commerce/Omni-Channel order fulfillment Retail SC Finance & Revenue Management Technology
  • Related Articles

    Private-Label Supply Chains: For Retailers, The Gain Is Worth the Extra Pain

    Walmart Is Testing a Fulfillment Service for Vendors to Match Amazon

    More Woes Seen for Traditional Retailers, as Mass Merchants, Club Stores Gain

Bloomberg

CVC Nears Deal to Acquire Logistics Firm Scan Global

More from this author

Subscribe to our Daily Newsletter!

Timely, incisive articles delivered directly to your inbox.

Popular Stories

  • A WORKER IN A WAREHOUSE, SUPERIMPOSED WITH GRAPHICS SHOWING SUPPLY NETWORK

    Enabling Intelligent Visibility With Supply Chain Analytics

    Data Management (Big Data/IoT/Blockchain)
  • A HAND TURNS A LARGE, LIGHTED DIAL WITH THE WORD RISK ON IT iStock-NicoElNino-1364371014.jpg

    Measuring KPIs and KRIs for Comprehensive Supplier Performance Management

    Technology
  • GSCMS-Promo.png

    Watch: Introducing the Global Supply Chain Marketing Summit

    Education & Professional Development
  • A COMPLEX SERIES OF ROADWAYS AND RAMPS, SEEN FROM HIGH ABOVE, IS PARTLY SHROUDED BY CLOUD

    Supply Chain Visibility Isn’t Just a Catchphrase; It’s an Imperative

    Logistics
  • A MAN IN A SUIT SITS LEANING OVER THE BACK OF A CHAIR IN A WOOD-PANELLED ROOM FULL OF LARGE PHOTOS OF OTHER MEN IN SUITS

    UPS Faces Rising Labor Costs, Strike Risk in Upcoming Union Fight

    Last Mile Delivery

Digital Edition

Scb q1 2023 cover

2023 Supply Chain Management Resource Guide: Packing for a Difficult Year

VIEW THE LATEST ISSUE

Case Studies

  • New Revenue for Cloud-Based TMS that Embeds Orderful’s Modern EDI Platform

  • Convenience Store Client Maximizes Profit and Improves Customer Service

  • A Digitally Native Footwear Brand Finds Rapid Fulfillment

  • Expanding Apparel Brand Scales Seamlessly with E-Commerce Technology

  • How a Global LSP Scaled its Security Program and Won More Business

Visit Our Sponsors

Orderful Yang Ming Alithya
Barcoding Blue Yonder BNSF Logistics
CoEnterprise Data Capture Deposco
E2open GAINSystems Generix
Geodis GEP GreyOrange
Here Honeywell Intelligrated IFM
Infor Inmar Keelvar
Kinaxis Korber Lean Solutions Group 2H
Liberty SBF Locus Robotics Logility
LogistiVIEW Lucas Systems MCA Connect
MPO Nvidia Old Dominion
OpenText ORTEC Overhaul
Parsyl PMMI QIMA
Redwood Logistics Ryder E-commerce by Whiplash Saddle Creek Logistics
Schneider Dedicated Setlog Holding AG Ship4WD
Shipwell Tecsys TGW Systems
Thomson Reuters Tive Trailer Bridge
Vecna Robotics Verity
Verusen
  • More From SCB
    • Featured Content
    • Video Library
    • Think Tank Blog
    • SupplyChainBrain Podcast
    • Whitepapers
    • On-Demand Webinars
    • Upcoming Webinars
  • Digital Offerings
    • Digital Issue
    • Subscribe
    • Manage Your Subscription
    • Newsletters
  • Resources
    • Events Calendar
    • SCB's Great Supply Chain Partners
    • Supplier Directory
    • Case Study Showcase
    • Supply Chain Innovation Awards
    • 100 Great Partners Form
  • SCB Corporate
    • Advertise on SCB.COM
    • About Us
    • Privacy Policy
    • Contact Us
    • Data Sharing Opt-Out

All content copyright ©2023 Keller International Publishing Corp All rights reserved. No reproduction, transmission or display is permitted without the written permissions of Keller International Publishing Corp

Design, CMS, Hosting & Web Development :: ePublishing