NEW YORK — Brick-and-mortar retailers — including drug, food and mass market chains — are scrambling to compete with Amazon.com in the e-commerce arena, especially on price, according to a study by investment firm William Blair & Co.
The report released Monday by analyst Mark Miller described Amazon’s price advantage over retail stores as "greater than anticipated," with almost half of the 2,400 items examined in the study sold at the online retailer for 11% less, on average.
For the analysis, William Blair gauged the competitive threat presented by Amazon to 24 hardline, mass merchant, drug, food, specialty and e-commerce retailers. It randomly selected 100 items in each retailer’s assortment and compared the product offering and pricing with that of Amazon. The study also weighed elements influencing the overall shopping experience and compared each retailer’s e-commerce site with that of its store to size up the potential opportunity plus the risk of share loss to online competitors.
"Companies that we view as facing a lower-than-average competitive threat from Amazon.com — Blue Nile, Whole Foods, The Fresh Market, Family Dollar, Dollar General, CVS Caremark, Walgreens and T.J. Maxx — tend to have lower dollar value or perishable items, smaller-format locations offering convenience, and other value-added features such as loyalty programs and experiential shopping that make the physical store visit more appealing," Miller wrote in the report.
"Conversely, companies that we estimate face a larger competitive threat from Amazon.com — hhgregg, Bed Bath & Beyond, Best Buy, Target, Dick’s Sporting Goods, PetMed Express and Kohl’s — skew toward higher-ticket, branded items that customers are increasingly inclined to purchase online," he stated.
Other retailers examined in the study included Walmart (which along with Target William Blair compared to Amazon in an analysis earlier this year) as well as Costco, GNC, Vitamin Shoppe, Ulta, Williams-Sonoma, PetSmart, O’Reilly and Tractor Supply.
William Blair’s analysis found that 72% of the items examined were available on each retailer’s website and that Amazon featured 47% of the items, or 1,119 of the 2,400. The study noted that 64% of the items featured on Amazon (714) were sold by third parties.
In terms of the price tag, Amazon’s prices were 11% below retail store prices, on average, in the most common customer-purchase situation (including Amazon’s shipping charges and sales tax advantage), the study revealed, adding that the pricing edge widens when consumers buy several items in an order. Only seven of the 24 retailers examined had lower store prices than Amazon.com.
"Moreover, we found that Amazon.com still has a mid-single-digit price discount, and nearly half (48%) of all the overlapping items would still be less expensive at Amazon.com, even if the company had to collect [sales] taxes," Miller pointed out.
Of the drug store chains examined in the study — CVS and Walgreens — each had a high degree of overlap with Amazon in terms of assortment, and Amazon’s items typically came at a savings over the stores’ prices.
Of the 100 items randomly selected at both CVS and Walgreens stores, 58% were also sold on Amazon, the second-highest quartile of assortment overlap in the study. The average per-item savings at Amazon for the overlapping items at CVS and Walgreens was a little more than $2 per item, translating to an over 10% savings at Amazon for the CVS items and a more than 12% savings at Amazon for the Walgreens items, the analysis found. Overall, 55% of the overlapping items at CVS and nearly 60% of the overlapping items at Walgreens were available for less at Amazon.
Yet the William Blair study concluded that both CVS and Walgreens are at a lower competitive risk from Amazon than other retail store operators because a large portion of the items they sell are products that consumers typically don’t buy online.
The report noted that Amazon’s pricing is most competitive on store items priced higher than $20 and least competitive on those costing less than $10. Of the overlapping items in the study priced at more than $20, the consumer saves, on average, 12% by buying the item at Amazon. Still, the analysis showed that approximately half of the items sold by Amazon itself are more than $30, while a much larger percentage of the third parties’ assortment is sold for less than $30.
Going forward, however, drug stores and food retailers might be concerned about a new Amazon feature called Subscribe and Save, in which the e-tailer offers a 15% discount on items when shoppers subscribe to buy them repeatedly at consistent intervals, according to the study.
"While still quite early, we believe the program could pose a larger threat over time for those retailers that sell consumables," Miller wrote. "Vitamins and supplements, in particular, are examples of product categories that could be purchased for additional savings in this Amazon.com program."
Regarding brick-and-mortar retailers’ own websites, the report showed that for individual item purchases, prices were "materially higher" than those available in their stores, including shipping fees to the consumer. On average, individual item prices with shipping were 14% higher online than in the store, and they were higher for all 17 of the retailers in the study that sell products via their website.
"Only after the consumer reaches a threshold with a large enough online transaction to reduce or eliminate shipping fees," Miller added, "do the prices equate to those available in the store."
