Whether you are a retail executive or investor, no tougher decision exists than where to put your money. You must bet on a future result, one that is often filled with uncertainty.
The precursor to revenue growth over the next year comes down to companies who can reduce risk, focus efforts and best meet customer expectations. The next retail winners are already investing in the right things today so customers will buy more, and buy more often, in the future. Find those companies, and you have the predictive power to see who has the best chance to win in the future.
A lot of algorithms go into this type of predictive power, but the concept is easy to understand. Competitive strength comes from the ability of companies to better meet customer expectations than their industry peers. The smaller that gap, the more customers will buy. The Competitive Strength 2021 chart shows a clear trend that, on average, companies with larger revenue share are better at meeting customer expectations. The pattern is there, and if you want find the next set of winners, the best place to look is at the outliers.
Let’s start at the top. Walmart is the clear #1 in revenue share with Amazon at #2 and Costco at #4. Inertia will likely allow Walmart to continue to hold the top spot in 2022, but both Amazon and Costco are poised for growth since they are nearly twice as good at meeting customer expectations than Walmart. Without building moats beyond economies of scale and value, Walmart will lose out to superior skills in precision and community building found in Amazon and Costco (respectively).
Moving down the rankings to smaller shares of revenue (for now) are companies like Nike, Starbucks, and Under Armour. Well-known brands that are in excellent position to grow in a post-pandemic world.
Near an all-time high in stock price, eBay is clicking on all cylinders. As trust has become essential in a digital world, the company’s expansion of its authentication services helps deliver on what customers need the most.
Future winners can also be found in the retailers ranked #80 and higher. With so much home buying/remodeling underway and likely to continue, furniture companies like Leon’s and RH have found the hot button with customers and still have a lot of runway to scale up.
So how about the retailers facing an uphill battle? GameStop has been an interesting investment in 2021, and their future is yet to be written. Since competitive strength scores are forced percentile ranks, some companies must rank lower that their peers. This doesn’t mean they are a bad company, it’s just that they are struggling to meet customer needs when compared to their peers. While GameStop is in the top 60 for revenue share, they are in the bottom 5 in competitive strength in the Top 100 rankings. The good news is that they do possess moats with customers in terms of their scale and brand, but these only help if they find new moats to build.
Next year’s winners in retail are already on their way to revenue growth. But so much can change in 12 months’ time.
-Gary A. Williams
Founder & CEO, wRatings
Co-Managing Partner, G2 Equity Partners