If you shop at Target, we've got bad news for you

How do you compete with Amazon and Walmart?

That's the question ringing in the ears of everyone who works in U.S. retail. Amazon's blockbuster $13.7 billion deal to buy Whole Foods solidified the notion that the retail giant is not content to just dominate ecommerce—it's coming for your real-world stores too.

Walmart is attacking from the other direction. Already established as the dominant U.S. store with more than 11,000 locations, it is now on a buying spree to establish itself as an ecommerce player.

Everyone else faces a very tough way forward. Many department stores and clothing outlets that haven't outright failed yet are teetering on the brink of death. Traditional grocers now fear a similar fate.

Can companies like Kroger and Target survive? Maybe. Here's how some big-name rivals still hope to play on the same field as Amazon and Walmart.

Target

Once the king of cheap-chic retail, Target and its more than 1,800 stores have been struggling intermittently for years as Amazon and Walmart eat into its market share.

In the face of that pressure, it's set out to recapture its trendy roots with a multibillion-dollar turnaround plan centered on smaller Walgreens-like stores in cities and college campuses.

STOCK PRICE FOR TGT

Full price information

Food is a naturally big part of that push, so the Amazon and Whole Foods deal last week was seen as a big blow. Target's stock tumbled in response, and Citi Research downgraded its recommendation of the company's shares on Wednesday.

"[Target]'s two main competitors have very quickly changed the game," analyst Kate McShane wrote in a research note on Wednesday. "This makes [Target]'s rev. growth prospects through organic or acquisition growth tougher to achieve, absent any kind of game-changing move."

8 PHOTOS
7 items you should always buy at Target
See Gallery
7 items you should always buy at Target

1. Toys

Photo credit: Getty

2. Kids' Bedding

Photo credit: Getty

3. Video Games

Photo credit: Getty

4. Makeup and Cosmetics

Photo credit: Getty

5. Picture frames

Photo credit: Getty

6. Household essentials

Photo credit: Getty

7. Groceries

Photo credit: Getty

HIDE CAPTION
SHOW CAPTION
of
SEE ALL
BACK TO SLIDE

Target can't match Walmart's scale or Amazon's convenience, but it has shown some signs that it might take a more unconventional tack towards its e-commerce business elsewhere. In recent months, it's partnered with shaving subscription services Harry's Razors and Bevel and invested heavily in mattress delivery startup Casper. It's possible Target may apply the same approach to groceries at some point.

Despite Target's supermarket ambitions, groceries remain something of a side hustle—they only account for around 20 percent of the discounter's overall revenue. Like Amazon and Walmart, though, Target treats the category as a "loss-leader," meaning that its purpose is more about drawing people into the stores on a regular basis than strictly sales, according to Forrester retail analyst Brendan Witcher.

"We'll take the grocery, but we want the other sales. That's what we're looking for," Witcher said of these companies' strategy. "Grocery, by default, then becomes a loss-leader standalone product, which is never a good thing."

Kroger

That approach is especially bad news for traditional grocers like Kroger, which obviously can't afford to treat their core business as window dressing.

STOCK PRICE FOR KR

Full price information

Kroger, with more than 2,700 stores, remains the biggest grocery retailer in the country, but it's struggled for years in the face of a growing challenge from Walmart. And without the luxury of the diverse income streams enjoyed by companies like Walmart, Amazon, and Target, it can't match their investments in the new technology needed to keep up with changing consumer preferences.

"Pure grocery is challenged because of the razor-thin margins that they operate on," Witcher said. "Without those secondary streams of income, it's very difficult to innovate and add technology to create better customer experiences because they have no revenue for that."

Even so, Kroger has managed to take on some tech projects, like a new "click-and-collect" online pickup system now available at more than 600 stores. It's also quietly built an impressive data analytics outfit that some analysts think could rival that of even Amazon.

But Witcher says traditional grocers will eventually have to bite the bullet and build a much more robust digital operation to avoid going the way of Blockbuster, no matter what short-term losses it might cause.

How could Kroger really make a splash? One analyst suggests it should outbid Amazon and take Whole Foods for its own.

"In turning around Whole Foods, both Amazon and Kroger would bring strong capabilities but ironically, Kroger's leadership in big data analytics in grocery could arguably be the most critical," Loop Capital's Andrew Wolf wrote in a research note on Wednesday.

Costco

Costco might seem to be the best-positioned retailer in the wake of Amazon's Whole Foods deal, considering that its wholesale bulk model has little overlap with Whole Foods' pricey artisanal fare.

But Wall Street is worried nonetheless. The company's shares have tumbled more than ten percent in the week since the news, and it faced multiple analyst downgrades.

STOCK PRICE FOR COST

Full price information

One point of concern is that Costco has mostly ignored its digital side as its rivals have scrambled to bolster theirs. The wholesaler's business model subsists on some of the slimmest margins in the industry, and its attention is focused almost exclusively on keeping prices low at all costs.

That attitude has mostly worked out okay. The thinking has long been that Costco's membership model and unbeatable prices could insulate it from the online threats facing the rest of the industry.

It also has an edge in its unique level of vertical integration—that is, its ownership of a number of the various stages of production between a product's origin and its sale. To keep supply costs down, Costco owns or invests in everything from chicken coops and hotdog factories to eyeglass grinding facilities and farmland and plows.

6 PHOTOS
5 best Kirkland products to buy at Costco
See Gallery
5 best Kirkland products to buy at Costco

1. Kirkland Signature Organic Extra Virgin Olive Oil 

This product is one of a few imported oils tested that met international and U.S. standards for extra-virgin olive oil, according to a study by University of California, Davis. 

Photo credit: Costco

2. Kirkland Signature Bacon

Consumer Reports gave Kirkland Signature Bacon an 'excellent' rating. 

Photo credit: Costco

3. Kirkland Signature Tequila Añejo 

Costco is known for it's superior liquor collection -- and the Kirkland Signature line is a customer favorite.  Kirkland Signature Tequila Añejo received a score in the 'exceptional' range, according to the director of the Beverage Tasting Institute's Tastings.com

4. Kirkland Signature Egg Nog Liqueur

This booze received top marks from Tastings.com, as well. 

5. Kirkland Signature Vodka 

Costco-brand vodka is praised for its great taste and low price.  

HIDE CAPTION
SHOW CAPTION
of
SEE ALL
BACK TO SLIDE

But with the the expansion of Amazon's Prime program and now its push into groceries, analysts aren't quite so sure about Costco's safeguards anymore. Some have noted that nearly half of Costco members also pay for Prime accounts, and there's speculation that Amazon might use perks for Prime shoppers to run Whole Foods with a system similar to Costco's.

Whatever happens, Costco seems to be simply staying the course for the time being; it's given no indication that it plans to rush into any big tech renovations.

At least it will always have free samples.

Ebay

Ebay doesn't offer much in the way of groceries but it's one of the few digital-first companies competing on Amazon's plane, and mostly because it doesn't have any other choice.

STOCK PRICE FOR EBAY

Full price information

The aging online auction house has struggled since its divorce from Paypal two years ago. Contrary to its dated reputation, second-hand goods only make up a small portion of its business nowadays. The rest relies on the same retail churn as any other shopping company.

But under the guidance of CEO Devin Wenig, Ebay has began to claw its way back with a distinct gameplan that's tailored to Amazon's weaknesses.

Amazon's online store is a well-tuned machine; you search for a particular product, maybe compare prices or reviews, and then await your order's speedy arrival. Everything the company does is built around speed and purpose.

That model may be efficient and convenient, but Ebay argues that it's not a whole lot of fun. What it promises instead is the virtual equivalent of digging through sales bins or browsing racks at a store. Ebay wants to attract shoppers who are more interested in stumbling across something unexpected than making bee-line purchases.

The company played up that contrast with colorful packaging and exciting products in an ad campaign launched earlier this month.

That focus doesn't mean Ebay's immune to the price wars of the rest of the industry, of course. The company announced on Wednesday that it will now match competitor prices on tens of thousands of products.

Despite its modest growth, the company remains little more than a blip on Amazon's radar, pulling in around 7 percent of the latter's revenue last year.

Read Full Story

Can't get enough personal finance tips?

Sign up for Finance Report by AOL and get everything from consumer news to money tricks delivered directly to your inbox daily!

Subscribe to our other newsletters

Emails may offer personalized content or ads. Learn more. You may unsubscribe any time.