On the heels of a mostly disappointing 2013 earnings season, many U.S. brick-and-mortar retailers will focus on building out their online presence for growth, according to Moody’s Investor Service’s new report, “Brick-and-Mortar Continues to March Online,” by Charlie O’Shea, VP – senior analyst, Moody’s.
Here are five highlights from the study:
1. Retailers are looking to online growth.
As brick-and-mortar retailers emerge from a rough 2013 earnings season, many will continue to focus on developing growth by building out their online presence – leveraging their physical store base rather than shutting large numbers of stores as they take on pure-play online players like Amazon.com.
2.Emphasis on distribution capabilities will grow.
Retailers such as Wal-Mart, Target, Costco, Best Buy, and Staples have proprietary distribution networks with their own vehicles, which will become increasingly important as they build online volume. The need to do so was apparent with the difficulties UPS and FedEx had managing increased shipping volume over the 2013 holiday season.
3.Online growth will cause disruption.
As retailers develop their online capabilities, we see higher duplicative costs causing some initial disruption in operating performance. Companies will likely increase operating expenses as they build out their multi-channel capability until their online networks reach an equilibrium point from an efficiency perspective.
4. Measuring online sales remains challenging.
We think it will take time before the industry has an accurate gauge on online sales growth, as there are few agreed common measures and many retailers have yet to break these figures out from their overall sales results. And when they do, it’s not always clear where the sale has been recorded. Is it counted strictly as an online sale or one for the brick-and-mortar base?
5.Strategic shift will take time – and be costly.
We think it will take time for retailers to achieve broader success in building out their multichannel capability. As they invest to grow, many could see margins suffer due to the increased costs, similar to the prior period when several of these same retailers were ramping up their store networks and rapidly growing square footage.