Toys ‘R’ Us Deploys Robots as Retailers Seek to Catch Amazon

U.S. retailers are shoring up their e-commerce operations, playing catch-up as budget-conscious shoppers defect to such online merchants as Amazon.com.

Walgreen Co. (WAG) and Toys “R” Us Inc. are among the chains rushing to open distribution centers, revamp websites and integrate their stores more seamlessly into their online operations. Amazon, meanwhile, plans to open 15 distribution centers this year.

“Many brick-and-mortar retailers have had their ‘a-ha’ moment as Amazon continues to grow and the Internet is getting more viable,” said Mick Mountz, chief executive officer of Kiva Systems Inc., which has seen orders surge this year for the warehouse robots it sells to retailers. Last month Toys ‘R’ Us opened a warehouse near Reno, Nevada, equipped with the Roomba- like critters, which shorten order turn-around time.

Some chains were caught off-guard by surging online orders in the 2010 holiday shopping season, said Mountz, who says one customer lost “millions of dollars” of Web orders it couldn’t fulfill because of inadequate online infrastructure.

Now stores are making up for lost time as they prepare for this year’s holiday shopathon. Last holiday season, online sales reached a record $32.6 billion, up 12 percent over the previous year, says market researcher ComScore Inc., which is based in Reston, Virgina. Many analysts expect Web purchases to be stronger this year.

“Given the current economic climate, free shipping and the ability to research product reviews before making a purchase make online shopping very compelling,” said Betty Chen, an analyst at San Francisco-based Wedbush Securities.

Weak Confidence

Confidence among consumers, whose spending makes up 70 percent of the U.S. economy, fell to the lowest level since May 1980 in August, according to a survey from Thomson Reuters/University of Michigan. Confidence fell to 54.9, the weakest since March 2009.

In the U.S., the unemployment rate has held above 9 percent for four straight months. The U.S. jobless rate was 9.1 percent in July, the Bureau of Labor Statistics said Aug. 5.

While the companies don’t break out how much they spend on Web-related operations, capital spending by the 35 retailers in the Standard & Poor’s 500 Index rose by an average of 27 percent in their most recent fiscal years -- the first such increase in three years. Toys ‘R’ Us, which is private, boosted capital spending by 41 percent in fiscal 2011.

Von Maur, a department store chain with 26 locations in the Midwest, has beefed up its online operations following a chaotic holiday shopping season in 2009, said Chief Operating Officer Melody Westendorf. At one point, Von Maur was a week behind fulfilling orders, she said.

‘Totally Blindsided’

“We were totally blindsided and it was chaos -- people running around the warehouse with printed order sheets, grabbing items and sending them out,” Westendorf said in a phone interview. “We were getting stuff wrong, orders were very late, and we had a lot of unhappy customers.”

The chain, which is based in Davenport, Iowa, has since built a distribution center equipped with Kiva robots and doubled online sales, she said.

Walgreen Co., the largest U.S. drugstore chain, will spend a record on its e-tailing operations this year, according to Sona Chawla, president of e-commerce.

“We’ve had a sense of urgency and are focusing on bringing in new customers online more than anything else,” she said in a phone interview.

Mobile Refills

Walgreen is trying to add shoppers with more interactive services. One lets customers refill prescriptions by sending photos of their medicine labels from their mobile phones. Customers also can e-mail or text-message pharmacists with questions, said Chawla. Two million people have signed up for the texting service and 25 percent of prescriptions are refilled via smartphone, she said.

The Deerfield, Illinois-based company bought rival Drugstore.com Inc. in June for about $429 million to add more niche items that can be found only on the site, Chawla said. The drugstore chain also is opening a distribution center equipped with Kiva robots.

With online sales now accounting for about 10 percent of revenue, Toys “R” Us also is spending more than ever on e- commerce, said Chief Executive Officer Jerry Storch, who declined to provide a specific figure.

The world’s biggest toy retailer is stepping up its online investments as more customers buy toys online and with their smart phones, Storch said in a phone interview.

Nowadays “we need to look at the online store and the brick-and-mortar stores the same,” Storch said.

Same Day

With its new robot-equipped distribution center, the Wayne, New Jersey-based company aims to ship Toysrus.com and Babies.com orders the same day they’re received, he said.

Kids can now plan their birthday parties on the Toys ‘R’ Us website, picking the theme -- Barbie, Bob the Builder -- and gifts. Once the birthday registry is complete, parents can e- mail it to relatives and other moms and dads.

Macy’s Inc. (M) is one of several retailers working to make their websites more effective sales drivers. The second-largest U.S. department store chain teamed up with the producers of “Pretty Little Liars” and “The Vampire Diaries” to produce a teen-oriented Web series that showcases Macy’s apparel.

Called “Wendy,” the series stars Meaghan Martin, who appeared in “Mean Girls 2,” as a girl who must choose between the boy she loves and the boy of her dreams. Viewers can watch the twice-a-week show on the Macy’s website and click through to the virtual style lab to buy the featured fashions. “Wendy” premieres Sept. 15. Macy’s declined to comment.

“Coming out of the recession, retailers realized it’s going to be a lot more competitive for consumers’ dollars,” said Al Sambar, a retail strategist at consulting firm Kurt Salmon in New York. “You can no longer be that guy still playing with the wooden tennis racket when everyone else is picking up metal and graphite.”

To contact the reporters on this story: Ashley Lutz at alutz8@bloomberg.net; Chris Burritt in Raleigh at cburritt@bloomberg.net.

To contact the editor responsible for this story: Robin Ajello at rajello@bloomberg.net.

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