Business Market

Walmart and Target are spending like crazy to stop Amazon

Walmart, Target and Kroger are opening their wallets to fend off Amazon.

They’re raising minimum wages to retain and attract workers. Stores are being remodeled to encourage customers to add a few extra items to their baskets each time they visit — and convince them to return. All three have lowered their prices.

The companies are optimizing stores and warehouses for speedy curbside pickups and grocery deliveries. Walmart is plowing cash into updating its website.

On Wednesday, Kroger said it was scooping up meal-kit company Home Chef in a deal worth up to $700 million.

Last week, the grocery chain paid $250 million for a stake in British online supermarket Ocado to help manage automated warehouses and leverage its digital technology in the United States.

Growing pains

The moves signal how far brick-and-mortar grocers and retailers today are reaching beyond their stores to fight off Amazon and adapt to online shopping.

“They are relying on acquisitions, which are proving to be very expensive, in order to catch up quickly or risk completely being outrun,” said Tom Gehani, director of client strategy and research at consulting firm Gartner L2.

Spending a ton of cash to ramp up digital operations, while slashing prices, has cut into profit margins at Walmart, Target and Kroger.

“Managing margins for an online business is very difficult,” said Cowen analyst Oliver Chen. “It’s a journey.”

For example, Target CEO Brian Cornell said last year that the company would embark on a three-year, $7 billion effort to reposition it for the future. The strategy includes opening smaller stores in urban markets and rolling out more private label brands.

“We’re investing in our business with a long-term view of years and decades, not months and quarters,” he said.

Walmart is also rapidly searching for new growth opportunities.

The company admitted that Jet has failed to resonate with shoppers in the middle of the country, but it has acquired niche brands such as Bonobos, Modcloth. Walmart paid $16 billion last month for India’s Flipkart, its largest deal ever.

Kroger hopes the Ocado deal “will allow [it] to react to how the customer may want to change their shopping habits over time in a big way,” chief financial officer John Schlotman said at a conference last week. Many Kroger customers have defected to Whole Foods after Amazon lowered prices at Whole Foods.

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