Amazon (AMZN) vs.
Walmart (WMT): It's a knock-down, drag-out clash of the new retail titans, with no end in sight. Walmart, the venerable emperor of brick-and-mortar discount stores, is dueling Amazon, the nouveau riche king of online shopping, trading punches in an escalating retail war that could determine the future of the industry — and crush smaller players who fall behind.
X Hostilities sparked when Walmart and Chief Executive Doug McMillon invaded the e-commerce space, forging a $3.3 billion deal to acquire startup Jet.com in August 2016. Jet became the platform for Walmart's online shopping strategy. Then Amazon CEO Jeff Bezos did some encroaching of his own in June 2017 when his company snapped up Whole Foods Market for $13.7 billion, its boldest entry into the brick-and-mortar retail business.
From that point on it was clear: The lines separating traditional from online retail are disappearing — and the two are up against new challenges unlike anything they've seen before. It's been a long time since Walmart shared the stage with a retailer of its caliber, while Amazon faces its biggest fight since it started wooing shoppers with cheaper prices and delivery conveniences more than two decades ago.
"There's a real big debate about who will win out between Amazon and Walmart," said Tim Barrett, a retailing consultant at Euromonitor. "It does seem like Amazon has more momentum but it also seems like it would be easier for Walmart to expand its online business than for Amazon to expand its presence in physical stores."
Amazon vs. Walmart has been a topsy-turvy war, and the advantage can change with each passing day.
Amazon Vs. Walmart Online Sales
Take last Tuesday. Shares plunged 10% after Walmart reported fourth-quarter earnings that missed expectations and revealed some struggles in its online shopping business. E-commerce sales rose 23% in the quarter from the year-ago period, but growth slowed from 50% in the previous quarter.
The slowdown was somewhat expected, as it was the first time e-commerce revenue included Jet.com sales in the year-ago period. But the drop was bigger than Walmart had forecast.
"A smaller portion of the slowdown was unexpected, as we experienced some operational challenges that negatively impacted growth," Walmart CEO McMillon said in the company's earnings conference call. He cited operational issues "from an inventory replenishment perspective."
Management expects online shopping sales to rise 40% this year. Last year, Walmart's U.S. e-commerce sales grew 44%, reaching $11.5 billion.
As Walmart feels its way into online shopping, Amazon is working to up its game in retailing at the physical store level. After its successful experiment with a cashier-free convenience store in Seattle, reports said this week it was considering opening six more outlets known as Amazon Go.
"Both will be going through growing pains," said Barrett.
This month, Walmart stock was upgraded to a buy from neutral at Goldman Sachs, which added the stock to its "conviction" list and said the retailer is "still very much in control of its own destiny." But the Goldman Sachs report said the competitive threat from Amazon "remains significant."
Amazon Vs. Walmart Revenue
Walmart has one advantage — it's much larger than Amazon by revenue. Walmart's 2017 sales surpassed $500 billion for the first time, making it almost three times bigger than Amazon. That size enables Walmart to put a much bigger price squeeze on suppliers than Amazon in online shopping, Barrett says.
But Amazon's embrace of Whole Foods put Walmart on notice that it intends to take a bigger piece of Walmart's retail pie. Walmart gets more than half of its sales from the $700 billion U.S. grocery sector.
Amazon has a few tricks up its sleeve as well. Amazon is undergoing a major expansion into apparel, with several of its own private labels. Earlier this month, Amazon announced the launch of two premium, private-label denim brands.
For Amazon to go all-in with Walmart, says Barrett, it must excel in food and clothing, not just online shopping.
"Those are the two big categories," he said.
Another muscle Amazon will flex is its strength in home delivery. This month Amazon announced that subscribers to its Prime membership program can now get groceries from Whole Foods delivered to their front door in two hours or less, for orders of $35 or more. The service currently is limited to just four cities — in Texas, Ohio and Virginia — but will expand this year.
The transformation of the two companies is still in its early stages. Analysts believe the battle for the future of retailing will play out for years. Amazon's Bezos needs to figure out how best to operate and grow beyond the 468 Whole Foods stores it acquired, just as Walmart's McMillon needs to expand online operations while handling 11,500 stores across 28 countries.
Outside this battleground, the prospects are getting dimmer, not only for existing retailers trying to compete with these two behemoths, but for those who were hoping to get their foot in the door.
"The competitive barriers just continue to get higher and higher," said Jared Wiesel, a partner at consulting firm Revenue Analytics. "Unless you have a really unique, differentiated business model, it will become more and more difficult to justify why someone would not shop at Amazon or Walmart."
Amazon Vs. Walmart Sales Channels
The trend pulling Amazon and Walmart closer and closer in combat is a concept called omni-channel retailing. The strategy is shared by all the large players in retailing today. The goal is to allow customers to easily shop with the same retailer in an integrated manner both offline and online, including mobile. Consumers can buy groceries online and arrange to have them delivered or picked up. Mobile phones can be used as a payment device in the store.
Among the most aggressive developers of the omni-channel strategy is China e-commerce leader
Target (TGT) has also made omni-channel retailing a major focus. In December, Target acquired Shipt, an online, same-day delivery platform, for $550 million in cash. With the help of Shipt, same-day delivery, including groceries, will soon be available at half of Target stores. Other retailers pushing in that direction include department store giant
Macy's (M) and consumer-electronics retailer
Best Buy (BBY).
This shift in retailing, mostly from Amazon, has inflicted serious damage on traditional brick-and-mortar retailers that haven't kept pace. Casualties include timeworn department stores
J.C. Penney (JCP),
Sears Holdings (SHLD) and Kmart, all of which announced sweeping store closures in 2017. In all, nearly 7,000 store closures were announced last year, according to FRGT. That's three times the number announced the year before.
Macy's has posted 11 straight quarters of declining revenue, year over year. Shares of J.C. Penney and Sears have been cascading for years.
Walmart is a different story. Unlike so many brick-and-mortar chains, Walmart stock traded at an all-time high with a 12-month gain of more than 60% in late January just before the stock market fell into a correction. Walmart shares' drop on the recent quarterly earnings disappointment, however, trimmed the stock's 12-month gain to below 30%. Shares were down fractionally most of Friday but ended up just on the plus side, adding 12 cents to 92.89.
Over the past year, Amazon stock is up more than 70%. On Friday, shares climbed 1% to close at 1,500.
Amazon Vs. Walmart Strategy
For now, investors seem to be placing their bets on Amazon. Though it has much less revenue than Walmart, Amazon has a higher market cap, at $700 billion vs. $310 billion for Walmart. In addition to its double-digit growth, Amazon's competitive advantages include online shopping, its Amazon Prime membership program, its network of fulfillment centers and Amazon Web Services, its highly profitable cloud-computing division. But the biggest fights may lie ahead.
The retail battle extends to international markets. Walmart is in talks to buy a 40%-plus stake in Indian e-commerce leader and Amazon rival Flipkart, according to Reuters. Flipkart is engaged in a head-to-head competition with Amazon in India.
"Several years ago, Walmart was on the defense and reacting to Amazon, but now they're playing offense," said Brian Yarbrough, an analyst at Edward Jones. "After buying Jet.com, everything changed and Amazon is now reacting to some of the things Walmart does."
With its Jet.com acquisition, Walmart reorganized its e-commerce business and appointed Jet.com founder Marc Lore to be president of its U.S. e-commerce business. On Wednesday Lore shot down rumors he might be leaving Walmart.
Lore has sharply expanded the number of items available at Walmart's online business. Walmart also introduced free two-day shipping on orders of $35 or more, and has plans to double its online grocery pickup locations to about 2,100. It partnered with Google for voice shopping using Google Home. Consumers will be able to buy "hundreds of thousands of items" on the Google smart speaker, striking a Walmart blow against Amazon and its voice-commanded Echo device.
"I think Walmart is a worthy competitor but at end of day Amazon will be just fine," said Josh Olson, an analyst who covers Amazon for Edward Jones. "We see Walmart as the only true competitor for Amazon, but their brick-and-mortar footprint is enormous and that's a big cost."
Walmart claims there's a Walmart store within five miles of 70% of the U.S. population. That store network could give Walmart an advantage over Amazon with services like grocery pickup, in addition to e-commerce pickup and support services.
"It will be good for consumers as price wars are expected to continue," said Revenue Analytics' Wiesel. "I think that price wars will probably continue to play out, because there are not a whole lot of other mechanisms on which to compete."
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