The Daily Dose: Ugly Drawbacks to the Big Shift Online

 | Sep 04, 2014 | 9:35 AM EDT  | Comments
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Most everyone invested in the market these days -- or tasked with covering it -- seems infatuated by the power that social media and mobile could have on a company's financial results. Oddly, many of these same folks have inadequate LinkedIn (LNKD) profiles and are not on Twitter (TWTR), and they never utilize Facebook (FB) properly, failing to tap in to the global conversation around a given issue or subject. It's so sad.

In any case, while mobile buying, mobile browsing and mobile interaction are proving to be beneficiaries to countless publicly-traded companies, keep in mind there are ugly drawbacks to this trend.

The first one is hacking, and this is a subject I touched upon in-depth in an interview for The Street with Symantec (SYMC) chief operating officer Stephen Gillett. Without the advance in mobile and online technologies, companies wouldn't be scrambling to lay the infrastructure while trying to reap all of the benefits right now. I believe retailers, banks and many other types of companies remain ill-equipped to defend private information of patrons simply because of execs are hungry for profit today. As a result, they are not laying the proper technological foundation to prevent breaches that ultimately destroy shareholder value.

Here is a telling comment from that interview with Gillett -- and this is an executive who has seen it all, having worked at Starbucks (SBUX) and Best Buy (BBY) in very prominent tech positions.

"As retailers converge in the digital, as they converge in the omnichannel experience, as they try to offer the latest and compete with each other for that attention to the customer in whatever channel they are coming in on, they are increasingly using more and more technology that either they are not proficient in, or they need third-parties. I think that risk is increasing. Some are doing it very well, some of them need some help, but the customer is demanding that the retailer engage with them in these new channels and experiences. That brings many of them into unchartered territory."

Another downside to advancing mobile technology -- which will only be magnified amid whatever piece of plastic Apple (AAPL) unveils Sept. 9 -- lies in the mega shifts in how people consume goods and services, and the attendant stress being put on companies as they operate their huge physical assets. Companies, such as retailers, have been unable to reduce their fixed costs quickly enough to address weak sales at physical stores. This is something that has been displayed in traffic counts.

For example, check out the persistently negative traffic, seen on the chart below, at Target (TGT) (in yellow) and Wal-Mart (WMT) (in white).

Target (TGT) and Wal-Mart (WMT) -- Traffic Trends
Source: Bloomberg

Macy's (M) was asked about poor store traffic at the Goldman Sachs Retailing Conference yesterday, and the company didn't necessarily have an answer as to how they might solve the problem. The company could only do a few things in response to this problem: It might roll out its buy-online, pick-up-in-store initiatives (called "click and collect" by those in the industry); it could begin to lay the foundation for same-day delivery; and it could open new branded shops with key partners.

These maneuvers would help to boost average transaction value -- but it's likely a few more stores will close in the years ahead in order for the company to run efficiently in a mall setting starved for physical customers.

Home Depot Hacking

As I said last year, when news surfaced of the Target security breach, more retailers are bound to get caught up in the wave of dirty deeds being orchestrated by faceless cybercriminals. While a part of me is surprised that Home Depot (HD) has been swept into the fray, given its strong management team, overall this is to be expected. This company, like others, is moving very quickly to integrate mobile and online with its physical store network. Things are bound to be overlooked, and the executives can't be totally to blame, as this concept of "omnichannel" retailing is a new one that changes daily.

I talked with Home Depot execs last week, shortly after its earnings report, and I remain impressed by what the company is doing online. Look for dedicated in-store pickup zones for online orders to crop up shortly. Further, via a few new distribution facilities, I think the company is poised to greatly improve its merchandise delivery times. That could alleviate shipping-cost pressures -- which is an industry problem, and truck driver shortages don't help matters.

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