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BusinessWeek: January 10, 2000 |
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Industry Outlook 2000 -- Distribution
Retail
Within this huge arena, the companies that have come to dominate traditional and online retailing will extend their leads, industry experts agree. "What you're seeing is a real polarization of performance, with a handful of companies doing quite well," says Steidtmann. Indeed, with inflation low and confidence up, the only drag on the top retailers this year will be shopper fatigue. "Consumers bought a ton of goods" in 1999, notes Robert F. Buchanan, an analyst at A.G. Edwards Inc. Kevin Mundt, an analyst at Mercer Management Consulting Inc., expects national discount stores and large efficient operators such as Wal-Mart Stores Inc. and Target Stores to be winners this year. Wal-Mart plans to add about 165 new supercenter stores, which sell groceries and general merchandise, bringing the total to over 800. That will help push fiscal year 2000 sales up 18%, to $193.7 billion, estimates Lehman Brothers Inc. Other highfliers could be "category killers" and variety stores such as Best Buy, Home Depot, and Bed Bath & Beyond. Online shopping opportunities will also diversify in 2000. The 1999 holiday season's online sales, which by A.G. Edwards' Buchanan reckoning hit $9 billion and shaved 1% off same-store sales, indicate what's to come. Net sales are forecast almost to double, to $39 billion, in 2000, according to Forrester Research Inc. Part of the action will go to traditional retailers, some of whom are teaming up with Net players. Last November, for example, Radio Shack operator Tandy Corp. announced a partnership with Microsoft Corp. aimed partly at expanding on the Net. As more households swarm onto the Net, "we will be a big beneficiary," declares Tandy CEO Leonard H. Roberts. Wal-Mart, Home Depot, and other first-tier retailers are counting on their formidable brands, supply partnerships, and marketing expertise as they expand their cyber-storefronts. But they face daunting challenges--including conflicts with their existing businesses and questions about how to fund online projects. None of this is insurmountable. But Merrill Lynch & Co. analyst Henry M. Blodget points out that online and off-line retailing are as different "as television is from the newspaper business." If the brick-and-mortar crowd is searching for sober strategies, studying Net ventures won't provide many clues. Leaders such as eToys, Buy.com, and Amazon are invading one another's turf in helter-skelter fashion. "We want to sell everything to everybody," says Joseph Galli, Amazon.com Inc.'s president. As a result, the online pioneer's revenues could rise 42% in 2000, to $2.62 billion, says Merrill's Blodget. But he still doesn't expect Amazon to be profitable. Chances are, investors will continue to cut Amazon some slack on earnings. In the online world, size seems to matter more than profits. In 2000, the race will be especially feverish because only two or three leaders are expected to survive in each major retail category. The number of U.S. households shopping online will probably swell 39%, to 28 million this year, Forrester estimates. But after that, growth rates may decline. To Bill Bass, vice-president of e-commerce at Lands' End, a leading apparel merchant online, all signs point to a shakeout. "We will see market share start to crystallize as people become more habitual in their shopping," he says. Today's e-tailers have a head start. By next Christmas, though, traditional retailers will be climbing over the bodies of startups. The ground will be bloody--but the fireworks should be absorbing. Return to top | |
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  Return to top TABLE Positives and Negatives POSITIVES -- Traditional retailers making the switch to selling online will see cost savings in real estate and employee payroll. -- Sales should pick up in Asia and continue strong in Europe, benefiting retailers like Wal-Mart overseas. NEGATIVES -- It's still difficult to get salespeople and maintain lower salaries in an economy with such low unemployment. -- Traditional retailers that aren't aggressive online will lose out to fleet-footed Internet startups. Return to top |
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