The rise of e-commerce has rocked the retail industry like nothing before. The brick-and-mortar storefront, a model that has persisted for thousands of years, is being gradually replaced by online retail, and the convenience of shopping from home or a smartphone is changing the way retailers, both physical and online, do business.
Not surprisingly, more than a few disruptive companies have emerged in this climate as mobile technology created opportunities that previously didn't exist. Let's take a look at few companies that are changing the retail industry.
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1. Stitch Fix
Personalized styling services have emerged as one type of innovation in clothing retail, but no one is doing it better than Stitch Fix (NASDAQ: SFIX), which is much larger than any of its direct competitors. At a market value of $2.5 billion, the company is the only publicly traded pure-play styling service.
Stitch Fix is disrupting apparel retail by giving consumers the ability to buy new clothes without the time, energy, and hassle that normally goes into shopping. Unlike traditional retail or even online options, Stitch Fix doesn't allow you to choose your own clothes. Instead, it sends you five items at a time based on an interface through which you select your style preferences, budget, and fit. Customers only pay for what they want to keep and return the rest. The fee for the service is $20, which is credited toward whatever items the customer decides to purchase.
This is all done online, which means Stitch Fix has heaps of data on what customers like and how its clothes fit, giving it a distinct advantage over traditional retail, which does not collect any such information. Management often talks about how the company uses data science and algorithms to help select clothes for its customers.
Thus far, the service seems to be picking up steam as revenue growth accelerated to 29% in its most recent quarter, and the company posted a wider profit than expected. Stitch Fix -- which already has petite and maternity offshoots from its standard offerings for men and women -- is preparing to launch a kids' line, showing that the company has plenty of room for growth as it moves into new product categories. Don't be surprised if Stitch Fix continues to take share from traditional clothing retailers.
2. Home Depot
Home Depot (NYSE: HD) may seem like an odd choice because the company is seen by many consumers as a typical big-box chain; however, the home-improvement retailer is changing quickly and pushing the envelope in a number of ways. It was early among brick-and-mortar chains to recognize the opportunity in e-commerce as it essentially stopped opening stores 10 years ago and instead invested that money in its current store base and building out its online capabilities.
Arguably, no retailer has done a better job at integrating digital technologies with the in-store experience. More than 40% of Home Depot's online orders are now picked up in stores as the company has focused its e-commerce strategy around products that don't lend themselves to online retail. It offers in-store demonstrations for customers who want to learn more about products or home improvement projects. Its associates all carry interactive smartphones to help them assist customers, and its mobile app uses augmented reality to help customers see how products would look inside their homes. The company was even named one of the 50 Most Innovative Retailers by Fast Company last year. In April, Home Depot said it was hiring 1,000 technology associates to work on projects relating to artificial intelligence, machine learning, and augmented reality.
It's no surprise that the company has consistently outperformed rival Lowe's and has been one of the best-performing retail stocks over the last decade.
It's impossible to discuss retail disruption without mentioning Amazon.com (NASDAQ: AMZN). Since its inception, the e-commerce giant has been rewriting the rules of retail with innovations like its Prime loyalty program, which has won over 100 million customers with benefits including free two-day delivery.
Amazon continues to roil its competition with new initiatives, such as rolling out free same-day delivery from Whole Foods locations following its acquisition of the grocery chain a year ago, and it's also experimenting with a high-tech, cashier-less Amazon Go store. Using a network of cameras and artificial intelligence, the store charges customers automatically based on what they take off the shelves and has no checkouts or lines. It's unclear what the future of Amazon Go will be, or if such technology will become mainstream, but according to reports, the company is planning to expand the concept to six new stores in addition to the original one in Seattle.
Meanwhile, Amazon continues to innovate in other ways, testing drone delivery and using robots in its warehouses, and its core philosophies like being customer-focused and building for the long term have put pressure across the retail industry to follow suit. Margins, for example, have generally fallen once Amazon enters a sector. Its tech prowess in areas like cloud computing and voice-activated technology also give it a leg up on the competition.
Companies across the retail spectrum are striving to reinvent themselves thanks to pressure from Amazon and others, but as the retail industry continues to evolve, these three companies will be among the leaders.
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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Jeremy Bowman owns shares of Stitch Fix. The Motley Fool owns shares of and recommends Amazon. The Motley Fool owns shares of Stitch Fix and has the following options: short September 2018 $180 calls on Home Depot and long January 2020 $110 calls on Home Depot. The Motley Fool recommends Home Depot. The Motley Fool has a disclosure policy.