Posted: Aug 04, 2017
Remember Borders? What about Circuit City, Tower Records, or Musicland? Those stores were all big chains back in 1995, when Amazon debuted. Now they’re all gone, due in part to pressure from the online retailer that’s upended the American retail landscape.
Jeff Bezos’ company has been blamed for killing off once-stalwart retail chains, forever changing the way we read and shop for books and squashing small businesses. And to hear some tell it, the path to total Amazon domination is just beginning. One investment firm even has a “Death by Amazon” index that tracks the stock prices of 54 retail chains they believe are most threatened by the online retailer.
Of course, Amazon isn’t always solely responsible for killing off struggling stores. Bad leadership and strategic mistakes have done as much to cripple companies, such as Sears and JCPenney, as competition from Amazon, according to some. But when a mega-retailer like Amazon gets a category in its crosshairs, companies in that space generally need to brace for impact.
As Amazon expands into even more areas of retail, from grocery stores to auto parts, the number of companies under threat is growing. If these 17 businesses can’t figure out a solution fast, they might be the next stores destroyed by Amazon.
1. Grocery stores
Amazon may only control 1% of the grocery business in the U.S., but it’s poised to take a much bigger piece of the pie, threatening both small and large supermarket chains with its recent purchase of Whole Foods. That has traditional supermarkets very worried. Amazon is entering the highly competitive U.S. grocery market just as a war is heating up between stalwarts, such as Kroger and Safeway, and expanding chains, such as Aldi and Lidl.
Kroger’s stock took a big hit after the Amazon announced it was buying Whole Foods, as did shares of Sprouts Farmers Market and Supervalu. The grocery battle could mean lower prices for U.S. consumers — at least in the near future — as well as a big shift in how we all shop for food, noted Quartz. Yet research suggests many people are resistant to the idea of shopping for groceries, especially perishables, online, so there might be hope for traditional supermarkets.
Traditional supermarkets aren’t the only stores feeling the heat from the Whole Foods-Amazon deal. Costco stock prices also dropped after the acquisition was announced. Investors are starting to fret that the company, which has a weak online presence, won’t be able to withstand the coming pressures, TheStreet reported. Some have even suggested the membership-only club might need to merge with Walmart to survive.
The hits from the Whole Foods deal just keep coming. Target’s stock price also fell on the news of Amazon’s acquisition of the natural foods grocer. The big-box store is feeling pressure from both Amazon and Walmart, according to CNBC. Grocery is a big part of Target’s business, and Amazon’s push into food could hurt the chain. The Minneapolis-based retailer is rolling out a next-day delivery service for household and some grocery items in order to compete with Amazon and is also adding more exclusive apparel and other merchandise that it hopes will lure people into its stores.
4. Blue Apron
The neighborhood supermarket isn’t the only food-related business Amazon has its eye on. It’s also moving into meal-kit delivery. The company recently registered a U.S. trademark for the phrase “We do the prep. You be the chef.” The Amazon Fresh kits are already available to some customers.
The revelation that Amazon is rolling out a product similar to the one offered by Blue Apron hit the latter company hard, which shares sinking on the news. Similar companies, such as Hello Fresh, Plated, and Home Chef, could also be in trouble.
Could things get worse at Macy’s? Sales are down at the mall chain, and the retailer is shuttering stores and laying people off across the country. Amazon will over take the department store chain as the biggest online apparel retailer in the country sometime in 2017. Pressure from the online behemoth is partly to blame for the store’s struggles, according to analysts, though some of the chain’s problems are of its own making. Other department stores, such as Kohl’s and Nordstrom, aren’t faring well either.
“The most exposed to e-commerce are the department stores: They’re carrying the same merchandise, and the in-store experience isn’t spectacular. So they’re losing foot traffic, and they’re discounting heavily,” Bridget Weishaar, an analyst at Morningstar Investment Service, told Bloomberg.
Staples has been struggling ever since a potential merger with rival Office Depot was shot down because of antitrust concerns. The companies argued Amazon was enough of a rival in the office supplies space to justify the merger, but a judge disagreed. Now, just as predicted, Amazon’s taking a bite out of Staples business. The online retailer has been courting business-to-business customers, previously a sweet spot for Staples, Retail Dive explained. If Amazon can lure enough of those corporate customers away from Staples, it could spell big trouble for the chain.
7. Best Buy
Amazon is the second-largest consumer electronics retailer in the country after Best Buy, and it’s gunning for the top spot, according to Quartz. In June 2016, Amazon surpassed Walmart in electronics sales, putting it in second place. At the same time, Best Buy’s market share is shrinking. Sales of TVs, headphones, laptops, and other electronic gadgets at Amazon grew 28% in 2015, compared to single-digit growth at Apple and Best Buy. But the brick-and-mortar electronics store is trying to fend off its biggest competitor by improving its e-commerce offerings. And it seems to be having some success, so the end might not be nigh for this chain.
Best Buy might be able to fight off the Amazon assault, but other retailers haven’t been so lucky. Indianapolis-based HHGregg is the latest casualty. In early April 2017, the electronics and appliances chain announced it was shutting down completely after more than six decades in business. An unsuccessful attempt at a national expansion after the company went public in 2007 was a big reason for the HHGregg’s failure, but competition from Amazon was also a factor, the Indianapolis Business Journal reported.
“We didn’t adapt to that change fast enough,” CEO Bob Riesbeck told the publication earlier in 2017. “And now we are playing catch-up.” Apparently, the last-ditch attempts at a turnaround failed.
9. Victoria’s Secret
Unflattering fitting room lights, awkward interactions with saleswomen, and high prices all come together to make bra shopping an unpleasant experience for many women. Amazon is betting it can turn that dissatisfaction into big business as it attempts to lure women away from stores like Victoria’s Secret by offering $10 bras. As it did in other areas, Amazon is likely sacrificing profit in an effort to persuade women to shop online, Marketwatch reported. The online retailer might also be trying to cut in on Target and Walmart, which already sell low-priced lingerie.
Selling intimate apparel online is a challenge because it’s hard to get fit right. But the time might be right for Amazon to take on Victoria’s Secret, which is responsible for two-thirds of all lingerie sold in the U.S. Sales are down, and a trend toward a more natural look means fewer women are aspiring to look like one of the chain’s famous Angels. Plus, refusing to sell larger-size bras means many women can’t shop at the store, and they might already be turning to Amazon to find the garments they want.
10. Barnes & Noble
The bookstore industry was the first to feel the effects of the Amazon revolution, as big chains, such as Borders, fell once people realized they could buy the same titles online for less. Barnes & Noble was one of the few big national bookstore chains that managed to hang on, but its days might be numbered.
Holiday sales in 2016 were disappointing, in part because the adult coloring book craze faded, but also due to ongoing pressure from Amazon. Things aren’t totally dire because the chain has a decent amount of cash and little debt, as Barron’s reported. But with Amazon opening up physical bookstores around the country (including on Barnes & Noble’s home turf of New York), the situation could sour quickly.
Discount shoe store Payless filed for bankruptcy in April 2017. Decreased foot traffic at America’s malls, caused in part by a growing preference for online shopping, is to blame, CNN Money reported. Four hundred U.S. stores will close. Low prices aside, stores like Payless are losing business to online retailers that offer a better array of products and don’t require an annoying trip to the mall.
“The model of online retailers is winning out. They are more competitive on pricing, they have better selection, and their convenience level is quite high,” Christian Magoon, CEO of Amplify ETFs, which has a fund tracking online-focused retailers, told CNN Money.
A sign for Etsy at an event celebrating the company’s IPO on April 16, 2015 | Paul Zimmerman/Getty Images for NASDAQ
Need a quirky handmade item for your best friend’s birthday? One of the thousands of artisans selling on Etsy would be happy to supply it for you. The craft marketplace, which was founded in 2005, has managed to marry the convenience of online shopping with the desire to buy unique goods and support small businesses.
Naturally, Amazon decided to get in on the action. It launched Amazon Handmade in 2015, and though the selection isn’t nearly as broad as what you’ll find on Etsy, it can get items to shoppers faster, Fortune explained. But the creative types who sell on Etsy haven’t jumped ship to Amazon just yet, suggesting that Amazon is going to find it difficult to eclipse its rival.
Department stores aren’t the only mall chains struggling with weak sales. GameStop is also having trouble getting buyers to visit its locations. The company plans to close roughly 150 stores because of a drop in global sales, which fell 13.6% from 2016 to 2017. Competition from Best Buy, Walmart, and — you guessed it — Amazon is to blame, according to USA Today. The fact that people are also buying fewer physical games doesn’t help either.
“Not only are they getting hammered by the online retailers and big box that have an inherent cost advantage through no retail real estate footprint or a much larger footprint that they can leverage with other products, but the movement to mobile-based games is creeping up mightily,” Larry Perkins, CEO and founder of SierraConstellation Partners, told USA Today.
14. Bed Bath & Beyond
Profits at Bed Bath & Beyond were down 30% in the first quarter of 2017, and some experts, like Mad Money’s Jim Cramer, are blaming Amazon for the slide. Online retail has been a challenge for the home furnishings chain, especially with Amazon offering free shipping to many shoppers. The chain hasn’t started shuttering its brick-and-mortar stores yet, but CEO Steven Temares said that might happen in the future, Fox Business reported.
15. Toys R Us
Amazon makes it easy to buy all the hottest toys at the click of a button, which is putting brick-and-mortar retailer Toys R Us in a tight spot, according to Investopedia. Sales have been declining at the chain for years, and it has $5 billion in debt. The store has promised to improve its online presence and offered generous discounts on 2017’s Prime Day to woo customers away from Amazon, but it might be too little, too late.
16. Dick’s Sporting Goods
The retail playing field hasn’t been kind to sporting goods stores recently. Several chains have gone out of business entirely in the past few years, including Sports Authority and Short Chalet. Dick’s Sporting Goods is the last remaining major national sporting goods retailer, and though it’s been working to capitalize on the demise of its rivals, the threat from Amazon is ever present. Shares of the company’s stock fell in in June 2017 on the news that Nike planned to start selling its products directly on the site. The chain also recently launched a price-matching program to compete against Amazon and other retailers.
17. Foot Locker
Dick’s Sporting Goods isn’t the only chain sweating Amazon’s Nike deal. Foot Locker could end up sidelined as well. Nike products made up 68% of the chain’s sales in 2016, according to Barron’s. If Amazon starts peeling away customers, the shoe retailer could be in big trouble.
By Megan Elliott
August 04, 2017
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