When you think of disruption, the most common place to turn your gaze is technology stocks. Talk about cloud computing or consumer gadgets always includes a caveat about how it’s hard to know what’s around the corner, and that an upstart today might be eating your lunch as a dominant player tomorrow.
But the retail space is not without disruption, either.
And considering the mammoth amount of money that goes into U.S. retail sales — which tally almost $380 billion each month — investors probably should pay more attention to the prospect of hungry, innovative retailers that could be taking the market by storm.
Click to Enlarge Consider the explosion of Walmart (WMT), which went from under $5 billion in annual revenue to over $45 billion across the 1980s by upending the department store model and clawing market share from old guard retailers Sears (SHLD) and JCPenney (JCP). This chart, courtesy of The Atlantic, tells the tale pretty darn well.
Then came Amazon.com (AMZN), which took the world by storm in the past 10 years and is trying to evolve from “The Earth’s Biggest Bookstore” to the Earth’s biggest store — period. AMZN’s 2001 revenues totaled $3 billion, and last year it did more than $61 billion.
You might say Walmart is untouchable, or that perhaps its only real competition is an equally dominant Amazon. But the marketplace is always changing, and technology and taste could very well usher in a new era of retail giants to challenge one or both.
Crazy, I know. But here are a few long shots worth considering if you buy that line of thinking:
Groupon: While Groupon (GRPN) has struggled with its “daily deals” model amid backlash from merchants as well as tough competition from RetailMeNot (SALE) and Google (GOOG) with its Google Offers couponing, there has been increasing success for GRPN with its Groupon Goods service. In a nutshell, the company is selling direct instead of simply offering you a discount on a service — and might build out Amazon-like warehouses to support this model. It’s a 21st century twist on direct mail marketing and infomercials, and could be an interesting segment to watch.
Blue Nile: At first, many people doubted the potential of e-commerce because of security and privacy concerns. But now it’s simply taken for granted that buying online is safe. So why not sell extremely high-end, luxury goods via the Internet — including a $10,000 engagement ring? That’s the idea Blue Nile (NILE) is building its business on, and the company continues to grow its top line steadily as a result. Luxury retail remains one of the few segments that hasn’t been overly cannibalized by online sales, thanks to both the high level of customer service and the need to ensure you’re not getting scammed with low-end or fake merchandise … but a decade from now, a model like Blue Nile’s could be the norm and not just an outlier.
Etsy: While I scoff at my wife’s interest in this website full of kitchy, overpriced knick-knacks, it’s crucial to understand the role of Etsy and other sites like it in the e-commerce space. Yes, Amazon and eBay (EBAY) have scale and a mainline to merchants around the world … but what about individual artisans or small businesses that aren’t plugged in to this big retail engine? What if they just want to sell a small amount of product to a limited but loyal customer base? As retail becomes more and more specialized, companies like Etsy might be a powerful way for shoppers to connect with smaller players instead of settling for what they find on a mega marketplace.
- How Walmart disrupted department store retail. (The Atlantic)
- Groupon earnings driven by Goods biz. (The Slant)
- FWIW, Etsy did $700 million in sales last year. (Tech Crunch)
- Blue Nile keeps seeing growth in online jewelry sales. (National Jeweler)
Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks. Write him at email@example.com or follow him on Twitter via @JeffReevesIP. As of this writing, he did not own a position in any of the stocks named here.