Why Wal-Mart will Beat Amazon in E-Commerce
Why Wal-Mart's physical footprint and employee base will allow it to beat Amazon in e-commerce over the long term
An aspect of digitalization is that the modern consumer increasingly values being able to shop online rather than brick and mortar retail.
For decades, Wal-Mart was America’s retailer. As you all know, much of this changed when Amazon came on the scene. Many might say that Amazon will be the clear long-term winner due to its head start in the e-commerce space. While Amazon recently became profitable for the first time in its history, I think WMT will be the long term winner – the first major organization to make e-commerce profitable at the largest scale.
Over the past several years, while many retailers have chosen to simply place their own businesses online through a “dot com” presence (e.g. nordstrom.com, macys.com, etc.), Wal-Mart has responded to Amazon in a much bigger way. Here’s a brief timeline of actions they’ve taken in the past year or so:
- Sep 2016 – WMT acquires Jet.com, an e-commerce site, for ~$3 bil. Its CEO, Marc Lore, is hired as Wal-Mart’s Head of E-Commerce[1]
- Mar 2017 – Wal-Mart acquires ModCloth, a trendy women’s fashion brand that sells through the e-commerce channel
- Jun 2017 – Wal-Mart begins testing a program in which its 1.4 million retail associates would deliver products to customers homes after hours
- Jun 2017 – Bonobos, a trendy men’s e-commerce fashion brand, is acquired. Public uproar gains media traction as loyal Bonobos and ModCloth consumers claim their brands have “sold out” to corporate giant WMT[2]
- Sep 2017 – 1,000th online grocery location opened in the U.S. – the service enables customers to order groceries online, and pick up from a Wal-Mart store without leaving their car. Also, WMT remodels its 500th store with the goal of i) faster checkout times and ii) more warehouse space to enable e-commerce deliveries
- Oct 2017 – Wal-Mart announces Mobile Express Returns (returning an item now takes 30 seconds in store vs. 5 min before this program)[3]
In addition to actions they’ve already taken, Wal-Mart’s strategy to compete with Amazon going forward consists of 2 key components:
- Leverage its existing physical and human assets – 90% of the U.S. population lives within a 15-minute drive of a Wal-Mart store and Wal-Mart has 1.4 million retail store employees.[4] WMT is uniquely positioned to be both online and in-store – wherever the consumer happens to be at their time of purchase.
- Focus on Grocery – Amazon’s biggest struggles have occurred in the “last-mile” of their supply chain. As the U.S.’s largest grocer Wal-Mart is uniquely positioned to get groceries to a consumer’s home more quickly and cheaply than Amazon.[5]
In my view, in addition to the above, management should focus on two key things.
First, Wal-Mart should be incentivizing online purchasing. Its consumers value it – 42% of Amazon Prime customers also shop at Wal-Mart.[6] Despite this, Wal-Mart deliberately makes products cheaper to pick up in store than to deliver.[7] I believe this is short sighted. While this optimizes profit for that purchase, each in-store pickup is a missed opportunity to show the consumer how Wal-Mart can deliver seamlessly.
The second is that Wal-Mart is a retail company, while Amazon is a technology company. In today’s job market, top engineers would rather work at Amazon than Wal-Mart. How will management make it cool to work at Wal-Mart?
Still, however the bottom line is this. Wal-Mart already has the distribution network. It’s much easier for Walmart to fix its consumer experience and stodgy brand reputation than it is for Amazon to acquire 4,600 fulfillment centers and 1.4 million employees throughout the U.S.
But what about where Amazon already has a foothold? Should Wal-Mart even try to take Amazon market share in the U.S.’s coastal urban areas, and if so, should they try to do so organically, or through acquisition (should they acquire Target?)?
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[1] “Forget about antitrust: Wal-mart is punching back at amazon.” (2017, Oct 10). Investor’s Business Daily
[2] Cheng, Nicholas. “Wal-Mart Is Buying Trendy e-Commerce Sites. The Cool Kids Are Not Having It.” Los Angeles Times, 17 Aug. 2017
[3] Thomas, Lauren. “Wal-Mart Promises 30-Second Returns in Stores, as Amazon Tries to Catch Up.” CNBC, cnbc.com, 9 Oct. 2017
[4] Dua, Tanya. “The Founder of Jet.com Explains Walmart’s Strategy to Beat Amazon.” Business Insider, Business Insider, 27 Sept. 2017
[5] Lim, S. F. W. T., Wang, L., & Srai, J. S. (2017). “Wal-mart’s omni-channel synergy.” Supply Chain Management Review, 21(5), 30-37.
[6] Chen, Oliver, CFA. “How Do You Make Wal-Mart Great Again in the Age of Amazon?” Cowen & Company Equity Research, 10 October 2016
[7] LaVito, Angelica. “Wal-Mart Raising Prices Online Shows the Difference between It and Amazon, Strategists Say.” CNBC, CNBC, 13 Nov. 2017
While I agree that Walmart has made several good moves to grow their e-commerce business organically and through acquisition, I disagree that Walmart will be the long run winner in e-commerce based on their current positioning and the future strategies that have been noted. First, saying Amazon has a head start is an understatement. In 2016, Amazon accounted for $149B or 38% of total U.S. e-commerce sales, whereas Walmart held just a 2.8% share. Projections for 2017 from eMarketer predict market shares for Amazon and Walmart to be 43.5% and 3.6%, respectively [1]. Second, in response to the strategy to leverage their physical assets and people, I don’t buy the fact that their physical stores will aid much in e-commerce sales in anything outside of groceries. The convenience of ordering from my couch and having items show up two days later outweighs any desire to order and pick up in person. In the grocery market, Amazon’s acquisition of Whole Foods gives them stores to serve customers for pick up in mostly urban areas with lots of customers, granted with a smaller reach than Walmart. With Amazon already having nearly 80M customers signed up for their subscription prime service, I think Walmart needs to do something drastic to make meaningful gains against the e-commerce giant. With that said, it will be interesting to see what happens, and I will be happy either way if it makes my life easier!
[1] Molla, R. “Amazon could be responsible for nearly half of U.S. e-commerce sales in 2017,” October 24, 2017, https://www.recode.net/2017/10/24/16534100/amazon-market-share-ebay-walmart-apple-ecommerce-sales-2017, accessed November 2017.
Very interesting post and perspective! I would agree that Walmart has made a few steps in the right direction in recent years to compete online. In addition to your above-mentioned acquisitions, within the last year, they even acquired one of my hometown favorites, Moosejaw, a small outdoor retail shop started in Michigan, for its online presence [1]. And their purchase of Jet.com seems to be paying off [2]. In addition to helping them grow their online presence and capabilities, acquiring these chic brands goes a long way toward helping Walmart improve their seemingly irredeemable brand.
Having said that, I completely disagree that Walmart even stands a chance at beating Amazon online. As mentioned above, Amazon has too large of a head start on Walmart. Combined with the fact you mentioned in your post—Walmart can’t attract top engineering talent—Amazon will likely remain technologically superior for at least the foreseeable future.
[1] https://news.walmart.com/2017/02/15/walmart-announces-the-acquisition-of-moosejaw-a-leading-online-outdoor-retailer
[2] http://www.businessinsider.com/walmart-stock-price-jet-acquisition-one-year-later-2017-10
While I think that Wal-mart’s current share of online retail sales is tiny compared Amazon’s, I would not discount Wal-mart just yet. Wal-mart is perhaps the only brick-and-mortar retail company that has the chance of competing with Amazon. Amazon does not always have the cheapest products, in many cases Wal-mart or other online retail sites may have cheaper prices. What Amazon currently offers are network effects and convenience/ease-of-use.
Wal-mart already has existing relationships with many product suppliers; it just needs to create a competitive digital retail platform that makes online purchases easy for consumers. Wal-mart has certainly shown that it is willing to spend significant capital to compete online with an estimated $11 billion to be spent in 2018 and 2019. [1] There may be a question as to whether Wal-mart can catch up, but the question has certainly not been answered yet.
[1] https://www.cnbc.com/2017/10/10/wal-mart-reiterates-earnings-outlook-plans-to-grow-grocery-digital.html
Very interesting article Andrew! It compelled me to think hard about whether Walmart can prove to be a legitimate threat to Amazon. And while I do believe that Amazon has such an incredible head-start and such an incredible driving force in Bezos that competing against it with a legacy company will be a mammoth task.
However, the game is not won yet as the e-commerce story has just begun. Only 5% of retail in the US (incl.F&B) is e-commerce-led and Amazon is ~45% of that. This means that companies like Walmart, still hold considerable market power, mind-share and brand share and customer pull.
Walmart can be a strongest contender against Amazon – in the very least, this can be a duo-poly:
1) Massive experience in sourcing and margin power – Walmart has decades of experience squeezing margins and developing white-label products and having deep relationships with suppliers.
2) Merchandising and reliability is a value-addition: There is such a thing as too much choice. As e-commerce becomes more and more cluttered there is a case to be made for merchandising, curated products. This will help the long-tail of consumers who trust Walmart’s judgement on products and price as all products will be sourced by it.
3) Omni-channel is an advantage on both the demand and supply side: Not only is the Brick and Mortar experience great from the customer side (people still want the shopping experience) but also advantageous from the supply side. Stores can function as warehouses, if executed well, deliveries can be made faster and a Walmart experience can theoretically trump the Amazon experience. While Amazon has purchased Whole-foods, whole-foods plays at the semi-premium end of the grocery business – a completely different and somewhat more niche customer value proposition.
4) Categories: Main revenue streams of Amazon are today derived from electronics which have wafer thin margins and are very prone to recessions and swings in the economy. Walmart is more dependent on staples like groceries and house-hold goods potentially helping it weather storms better than Amazon.
Thanks for such interesting post Andrew!
I wasn’t aware of Walmart’s so many acquisitions of e-commerce websites in order to build presence online and compete with Amazon.
I’d argue that Walmart is a retail business and Amazon is a technology company, at its essence. The way that Amazon operates its business –
selection, merchandising, distribution channel etc – whether it’s books, e-books, AWS cloud space, Amazon Instant video, Amazon Wardrobe etc. is pretty much the retail mindset, just moving from offline traditional brick-and-mortar stores to online virtual stores. Amazon completely changed and shaped customers’ shopping behavior.
On the other side, while a clear leader in online retail, Amazon has also stepped up its presence in the physical retail world thanks to its purchase of Whole Foods and opening of Amazon Books stores in many big cities. The retail world is really going to remain a battle of just Amazon and Walmart (excluding international players), and the question as to whether Walmart can catch up remains to be answered, so far looking at the past Thanksgiving holiday weekend, more than three-quarters of those surveyed said they shopped at Walmart (online or at the store) and nearly 70% bought something at Amazon. The next closest retailer was Kohl’s, with about 56% of consumers shopping there. [1]
[1] http://money.cnn.com/2017/11/27/investing/cyber-monday-online-retail-stocks-amazon-walmart/index.html