U.S. Retailers Fight for Online Presence

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Using robots and building additional warehouse centers, online retailers are copying the online distribution tactics ofAmazon.com Inc.

Bloomberg reportsretailers such as Walgreen Co.and Toys “R” Us Inc. are beefing up their online sales efforts in anticipation of the holiday season and to win back customers from Amazon. Brick-and-mortar retailers are mimicking Amazon’s consumer-friendly and streamlined operations by redesigning their online retail sites and improving distribution channels.

Walgreen Co. (WAG)and Toys R Us Inc. are among the chains rushing to open distribution centers, revamp websites and integrate their stores more seamlessly into their online operations.

Many brick-and-mortar retailers have had their a-ha moment as Amazon continues to grow and the Internet is getting more viable, said Mick Mountz, chief executive officer of Kiva Systems Inc., which has seen orders surge this year for the warehouse robots it sells to retailers. Last month Toys R Us opened a warehouse near Reno, Nevada, equipped with the Roomba- like critters, which shorten order turn-around time.

Some chains were caught off-guard by surging online orders in the 2010holiday shopping season, said Mountz, who says one customer lost millions of dollars of Web orders it couldnt fulfill because of inadequate online infrastructure.

Now stores are making up for lost time as they prepare for this years holiday shopathon. Last holiday season, online sales reached a record $32.6 billion, up 12 percent over the previous year, says market researcher ComScore Inc., which is based in Reston, Virgina. Many analysts expect Web purchases to be stronger this year.

Given the current economic climate, free shipping and the ability to research product reviews before making a purchase make online shopping very compelling, said Betty Chen, an analyst at San Francisco-based Wedbush Securities.

Weak Confidence

Confidence among consumers, whose spending makes up 70 percent of theU.S.economy, fell to the lowest level since May 1980 in August, according to a survey from Thomson Reuters/University of Michigan. Confidence fell to 54.9, the weakest since March 2009.

In the U.S., theunemployment ratehas held above 9 percent for four straight months. The U.S. jobless rate was 9.1 percent in July, the Bureau of Labor Statistics said Aug. 5.

While the companies dont break out how much they spend on Web-related operations, capital spending by the 35 retailers in the Standard & Poors 500 Index rose by an average of 27 percent in their most recent fiscal years — the first such increase in three years. Toys R Us, which is private, boostedcapital spendingby 41 percent in fiscal 2011.

Von Maur, a department store chain with 26 locations in the Midwest, has beefed up its online operations following a chaotic holiday shopping season in 2009, said Chief Operating Officer Melody Westendorf. At one point, Von Maur was a week behind fulfilling orders, she said.

The chain, which is based in Davenport,Iowa, has since built a distribution center equipped with Kiva robots and doubled online sales, she said.

Walgreen Co., the largest U.S. drugstore chain, will spend a record on its e-tailing operations this year, according to Sona Chawla, president of e-commerce.

Weve had a sense of urgency and are focusing on bringing in new customers online more than anything else, she said in a phone interview.

Mobile refills

Walgreen is trying to add shoppers with more interactive services. One lets customers refill prescriptions by sending photos of their medicine labels from their mobile phones. Customers also can e-mail or text-message pharmacists with questions, said Chawla. Two million people have signed up for the texting service and 25 percent of prescriptions are refilled via smartphone, she said.

The Deerfield, Illinois-based company bought rival Drugstore.com Inc. in June for about $429 million to add more niche items that can be found only on the site, Chawla said. The drugstore chain also is opening a distribution center equipped with Kiva robots.

With online sales now accounting for about 10 percent of revenue, Toys R Us also is spending more than ever on e- commerce, said Chief Executive Officer Jerry Storch, who declined to provide a specific figure.

The worlds biggest toy retailer is stepping up its online investments as more customers buy toys online and with their smart phones, Storch said in a phone interview.

Nowadays we need to look at the online store and the brick-and-mortar stores the same, Storch said.

Same Day

With its new robot-equipped distribution center, the Wayne, New Jersey-based company aims to ship Toysrus.com and Babies.com orders the same day theyre received, he said.

Kids can now plan their birthday parties on the Toys R Us website, picking the theme — Barbie, Bob the Builder — and gifts. Once the birthday registry is complete, parents can e- mail it to relatives and other moms and dads.

Macys Inc. (M)is one of several retailers working to make their websites more effective sales drivers. The second-largest U.S.department store chain teamed up with the producers of Pretty Little Liars and The Vampire Diaries to produce a teen-oriented Web series that showcases Macys apparel.

Called Wendy, the series stars Meaghan Martin, who appeared in Mean Girls 2, as a girl who must choose between the boy she loves and the boy of her dreams. Viewers can watch the twice-a-week show on the Macys website and click through to the virtual style lab to buy the featured fashions. Wendy premieres Sept. 15. Macys declined to comment.

Coming out of the recession, retailers realized its going to be a lot more competitive for consumers dollars, said Al Sambar, a retail strategist at consulting firm Kurt Salmon inNew York. You can no longer be that guy still playing with the wooden tennis racket when everyone else is picking up metal and graphite.

Theincrease in online shoppinghas proved problematic for some retailers that don’t have a strong e-commerce site built into their business.

In contrast, Amazon said in July that it’s experiencing the strongest surge in growth it’s seen in 10 years. In July, the e-commerce giant reported that sales soared 51 percentduring the second quarter of this year, compared to the same quarter a year ago.

The online retailer is planning to open 15 distribution centers this year.

Toys ‘R’ Us factor

Toys ‘R’ Us Inc. stated that its first quarter results showed an increase in the company’s losses to USD67 million up from a loss of USD55 million year on year, reported AP. The US-based company also said that the reasons behind the climb in losses were higher operating costs, the opening of new stores as well as preparing for the launch of a West Coast distribution center. The firm added that it spent around USD58 million on upgrading its technology, opening new store and converting existing ones. It is worth noting that Toys R US Inc, which runs Toys R Us and Babies R Us stores, stated that its revenue rose a small 1 percent in the same quarter to USD1.64 billion, while revenue at stores open for a year at least went down 1.9 percent year on year.

Toys ‘R’ Us has an inherent presence in the Middle East region, with stores across the GCC, in the UAE, Qatar, Bahrain, Egypt, Oman and Kuwait.

In July this year, Toys ‘R’ Us opened its new store in the heart of Sharjah at the popular Sharjah City Centre shopping mall. With the opening of the new store, the Al-Futtaim Group company now has 7 stores in the UAE and 14 across the MENA region.

About Toys “R” Us:

Launched by the Al-Futtaim group in Dubai in 1995, Toys “R” Us now exists in 14 locations in the MENA region and has emerged as the undisputed market leader for all children related products. The stores offer an unrivalled range of indoor and outdoor activity games, toys, and bicycles for young children with an emphasis on learning and technology. The store also caters to mothers through its Babies “R” Us section, featuring the largest selection of baby products, such as furniture, car seats, strollers and more.

Merchandise is sold in 873 ToysRUs and BabiesRUs stores in the United States, and in more than 520 international stores and over 200 licensed stores in 33 countries and jurisdictions.

With its strong portfolio of e-commerce sites includingToysrus.com,Babiesrus.com, eToys.com,FAO.comandbabyuniverse.com, it provides shoppers with a broad online selection of distinctive toy and baby products. Headquartered in Wayne, NJ, ToysRUs, Inc. employs approximately 70,000 associates worldwide.

Sources: Bloomberg, techflash, toysrusuae, morrisanderson, istockanalyst, Reuters

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