These companies are handling the transition to online better than others

By Ezequiel Minaya and Lynn Cook 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (December 3, 2018).

The rise of online shopping, and the dominance of Amazon.com Inc., has upended the retail sector, leaving behind plenty of old-line, big-name stores. But several traditional brands are managing the transition well, according to a new ranking compiled by the Drucker Institute of the most effectively run U.S. companies.

Among the highlights for retailers in this year's Management Top 250 rankings -- which evaluate companies on customer satisfaction, employee engagement and development, innovation, social responsibility and financial strength -- Home Depot Inc. remains a standout in financial strength. The big-box heavyweight, which has strong same-store sales and a stock price that has more than doubled over five years, ranks in the top 1% for financial strength among the more than 750 companies evaluated by Drucker. Now the company is pouring $1.2 billion into speeding up online deliveries to homes and job sites to keep up with its rapidly accelerating digital sales.

In the innovation category, many retailers slumped this year, but Gap Inc. improved its score, thanks to changes like rolling out new technology that helps staff refresh inventory, which will help its brands like Banana Republic and Athleta capitalize on the demand for fashion that keeps up with rapidly changing trends. Gap jumped 39 places in the overall ranking to No. 101.

In customer satisfaction, Tiffany & Co.'s efforts to continue evolving boosted its score this year, earning the company five stars in the category, up from four last year. The traditionally high-end jeweler is experiencing a renaissance as it expands to a wider range of price points and launches new, modern collections and marketing that appeals to younger shoppers. While sales are up, profits are under pressure as Tiffany, like other retailers, invests heavily to improve e-commerce operations and physical stores. The company is revamping its flagship Fifth Avenue store in New York.

Retailers in general have benefited this year as a strong U.S. economy and a corporate tax cut that translated into bonuses for some American workers helped spur consumer spending.

Many retailers have seen an uptick in quarterly sales after years of bleak news, including record store closures and bankruptcy filings as consumers increasingly shopped online.

"Retailers are doing much better this year," says Matthew McClintock, a senior retail analyst for Barclays. "If we were having this conversation a year ago, people were still aggressively thinking Amazon was going to destroy retail."

But while some investors and industry watchers credit the retailing comeback solely to the strong economy, Mr. McClintock says it's more than that. He believes there are companies successfully adapting to this new digital world. "There's something more sustainable here," he says.

Battling Amazon

The annual Drucker Institute rankings provide further evidence that Amazon is the retailing giant to beat. It is the No. 2 company overall, trailing only Apple Inc. But the rankings also show that several other retailers are counterpunching with innovative strategies.

Walmart Inc., the world's biggest retailer by revenue, and Target Corp., which posted its best quarterly results in more than a decade earlier this year, have stoked store traffic with a "click and collect" service where an order submitted online will be walked out to a customer's car. "It's way more convenient than anything Amazon has today" for customers in need of same-day service, says Mr. McClintock.

Best Buy Co. has made its business model somewhat Amazon-proof by offering in-store services and expertise, several analysts say. The company beat Target, Lowe's Cos. and Amazon in the customer-service category in this year's Drucker list.

On the employee side, Best Buy has drastically reduced its staff turnover rate, offering tuition assistance, backup child care and paid time off for part-time employees to keep its talent from straying to the competition.

Best Buy also boosted its workforce of in-home consultants by 75% to more than 500 people in 300 locations in recent months. These consultants make house calls to help families set up appliances and electronics.

Still, Best Buy's rise to No. 62 overall from No. 89 last year came in large part because of its high score on social responsibility. Paul Herman, chief executive of HIP Investor, a sustainability ratings and investment firm, says Best Buy doesn't send used electronics like LED TVs and smartphones to landfills, or overseas where they are picked apart for their metals. Instead the company captures those products at the store level and recycles them. Best Buy has also reduced its greenhouse-gas emissions, with a goal to slash its carbon footprint by more than half by 2020, Mr. Herman says.

The lure of a store

Off-price clothing retailer TJX Cos., parent of the T.J. Maxx and Marshalls chains, has bet that plenty of people still love to shop in person. CEO Ernie Herrman recently told investors that young customers and diverse populations love a good bargain, but they're even more into the "treasure-hunt shopping experience" they get every time they walk into a store and there's different merchandise sourced from around the world.

TJX jumped to No. 72 overall in this year's Management Top 250 from No. 134 last year, and ranks 33rd out of 752 for financial strength.

"Capitalism is Darwinian, and those that are weak players, who have undifferentiated products and mediocre service and are underinvested in technology, are being left behind," says Kelli Hollinger, director of the Center for Retailing Studies at Texas A&M University. "Successful companies offer an exceptional customer experience because experience is becoming more important than even product or price."

Mr. Minaya is a Wall Street Journal reporter in New York. Email him at ezequiel.minaya@wsj.com. Ms. Cook is the Journal's management bureau chief. She can be reached at lynn.cook@wsj.com.

 

(END) Dow Jones Newswires

December 03, 2018 02:47 ET (07:47 GMT)

Copyright (c) 2018 Dow Jones & Company, Inc.
Target (NYSE:TGT)
Historical Stock Chart
From Feb 2024 to Mar 2024 Click Here for more Target Charts.
Target (NYSE:TGT)
Historical Stock Chart
From Mar 2023 to Mar 2024 Click Here for more Target Charts.