For Immediate Release
Chicago, IL –July 8, 2019 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: Walmart Inc. WMT, Foot Locker, Inc. FL, Shoe Carnival, Inc. SCVL, Nordstrom, Inc. JWN and Macy's, Inc. M.
Here are highlights from Friday’s Analyst Blog:
Retail Cannibalization: Walmart (WMT) Latest to Fall Prey
The retail space is currently passing through turbulent times despite a relatively healthy U.S. economy with record-busting equity market performance by benchmark indices. Dwindling sales by several underperforming stores have led to a surge in brick-and-mortar store closures, following the principle of ‘survival of the fittest.’
In 2018, the retail sector reportedly witnessed 5,864 store closures as low customer footfall generated soft turnover, rendering most brick-and-mortar stores financially unviable. With online shopping fast becoming the preferred mode of transaction, about 5,994 store closures are in the cards this year as retail sector bankruptcies are piling up. Notably, online shopping is likely to swell from 16% of retail sales at present to 25% by 2026, bringing on the chopping block an estimated 75,000 stores. (Read More: Retail Bankruptcies Soar: Esports & Gym Chains to the Rescue)
In addition to the evolving customer preferences and preeminence of the online shopping platform, much of the lackluster performance is attributable to retail store cannibalization, whereby one store undercuts another store of the same company. In order to survive in a cut-throat market, various companies often resort to increasing their physical footprint in every nook and corner of the locality. This often ended up putting stores into direct competition with one another, and became an unsustainable model with rising rents and other operating costs adding to the woes of declining store traffic.
Retail firms have learnt the hard way that quality supersedes quantity and overexposure though higher number of stores often fail to yield the desired effect. Efforts are on to focus more on increased customer reach and deeper market penetration through location analytics to choose better locations and identify the right ways to expand without compromising on profitability. The latest firm to realize this ideology after falling prey to retail store cannibalization is Walmart Inc.
Feeling the Pinch?
With more than 5,300 combined retail locations across the United States, Walmart has aggressively expanded its store footprint from a humble beginning in 1962. The company followed an extensive expansion strategy to garner a top-of-the-mind customer recall for almost anything on offer for day-to-day use. However, this apparently became the undoing for the company as it battled sales erosion due to overexposure.
Per data from analytics firm Placer, Walmart is forced to close some of its relatively healthy-performing stores due to direct competition from some of its own stores. These store closures were not due to reduction in brand value or customer loyalty as evident from solid customer traffic, but because of audience overlap as customers were served by multiple locations. In other words, customers were spoilt for choices as to which Walmart store to go to, unnecessarily pitting one store against the other.
Not an Aberration
The story is somewhat similar with other retailers — notable examples being Foot Locker, Inc. and Shoe Carnival, Inc. Over the years, Foot Locker has considerably reduced its store footprint to stem loses. The company recorded a significant jump in operating costs in the just-concluded quarter, which strained its margins. Consequently, Foot Locker aims to shutter 165 stores across the globe and open only 80 locations to prevent direct competition.
Shoe Carnival has slowed down its store openings while closing underperforming units. The company is particularly focusing on increasing the ‘breathing space’ between stores to prevent cannibalization. Department stores like Nordstrom, Inc. and Macy's, Inc. have also reduced their store footprint as the battle for survival become murkier with intense price wars.
Location Analytics to the Rescue
Various retail companies are increasingly leaning on location analytics and other data-driven tools to better understand customer engagement and enhance their own visibility. This has helped retailers to close even some profit-making stores to prevent cannibalization, and instead focus their resources to fend off competition from rivals.
Beth Goldstein, accessories and footwear analyst at The NPD Group perfectly observed, “As data becomes more sophisticated, retailers have more tools to help them understand their customer base, and they can make more informed decisions. Although in some cases, [they] might still choose to have some overlap if a location has strategic value like trying to edge out a competitor.”
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Shoe Carnival, Inc. (SCVL) : Free Stock Analysis Report
Foot Locker, Inc. (FL) : Free Stock Analysis Report
Nordstrom, Inc. (JWN) : Free Stock Analysis Report
Walmart Inc. (WMT) : Free Stock Analysis Report
Macy's, Inc. (M) : Free Stock Analysis Report
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