Wal-mart (WMT), Best Buy (BBY) Said Thriving Online as Amazon (AMZN) Leads - Moody's

September 15, 2016 10:39 AM EDT

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Brick-and-mortar retailers such as Walmart and Best Buy are not only surviving online, but are actually thriving, due to their sizable physical assets and riding the online wave started by Amazon, Moody's Investors Service says in a new report. But even as these same retailers have made notable progress in bridging the gap between physical stores and online through consumer-friendly options such as the buy online/pick-up in-store offering, work lies ahead to increase their online relevance. Walmart and Best Buy are striving to build meaningful online businesses and battle to be in the conversation with Amazon.

"We believe this pitched battle is still in its early stages, and that online retail sales will eclipse 20% of total retail sales in seven years -- more than double today's roughly 9%," noted Moody's Lead Retail Analyst Charlie O'Shea. "Online sales still remain a relatively small drop in the retail revenue bucket -- although it is also proving to be by far the fastest-growing sector as brick and mortar focuses more resources on this channel."

In its report, "Walmart, Best Buy are Leading Brick & Mortar Online Fight as Amazon Ups Stakes," Moody's notes that despite Amazon's continuing to raise the bar online and its decade-plus online advantage over other retailers, it still faces intense competition from the likes of Walmart and Best Buy, which are raising the bar for brick-and-mortars. Walmart's recent acquisition of Jet.com, while not a threat to Amazon's position, provides Walmart a speed advantage in boosting online growth by leveraging Jet's ready-made platform. Additionally, Best Buy is an example of a retailer that continues to successfully transition online, with penetration approaching 20% of total sales.

Alongside investments in online capabilities, the option of buy online/pick-up in store for same day availability, remains a powerful tool for brick-and-mortars in the competition for consumer dollars. Estimated to facilitate 40-50% of all online sales by brick-and-mortar retailers, the buy online/pick-up same day model empowers retailers to unlock working capital as it helps facilitate inventory optimization. And even as brick-and-mortar retailers race to innovate to compete with online, many are still struggling under the weight of excess square footage, as Moody's cautions that there is still far too much retail square footage overall, and that square footage for non-food/non-auto-related retailers is excessive.

"We are not in the camp that believes mass store closings are in order, but rather, think that the 'fleet' must be repurposed, with some store closings a likely by-product," explained O'Shea. "When properly deployed, physical locations are a definite asset in the multi-channel world, as they represent touch points for the consumer, as well as distribution points for the retailer."

Moody's research subscribers can access this report at:


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