Clash of the Titans: Walmart vs. Amazon
By: Jeremy Hanks
After an ecommerce power-up that included acquiring a string of online retailers as well as Jet.com, Walmart took a major slug at Amazon by offering free 2-day shipping for qualified orders of $35 or more, no special membership required. Amazon was quick to unleash its own fury by lowering its free 2-day shipping threshold to $25 for non-Prime members and offering 45% off Prime membership for low-income subscribers.
It’s clear this brawl is just heating up, but who’s going to win?
Let’s look at the numbers.
Amazon has a current market cap of $477B as well as $21.5B in cash on hand. Its 2016 revenue was $136B. Through innovation, smart business tactics, and sheer brute force it has been able to grow year after year and dominate American ecommerce. Investors and analysts seem to be betting on Amazon, pushing its stocks up past $1000 for the first time in May.
Walmart, however, is not a company to be easily dismissed. Despite the financial and tech sector hype surrounding Amazon, Walmart is a juggernaut with a market cap of $236B and a physical store presence within 10 miles of 90 percent of all Americans. Its total revenue for 2016 was $482B, and with Marc Lore at the helm, Walmart’s ecommerce sales this quarter have grown a mind-boggling 63 percent.
Walmart is therefore in a unique position to make large moves against Amazon. It has both the deep pockets and widespread profitable physical store presence to do so. All of this should be a cause of concern for Jeff Bezos.
My bet is that neither company will achieve true dominance. Instead, their clash will be long and brutal, causing huge waves to roll through retail.
Let’s look at some of the actions Walmart might take against Amazon in this fight.
#1: Walmart Continues to Attack Free Shipping
Walmart is offering discounts to customers willing to pick up their orders at Walmart locations. Additionally, it is taking the unprecedented step of enlisting its own store employees to drop packages off on their way home from work. These moves help mitigate the high costs of last mile delivery for Walmart and could allow it to again drop its free 2-day delivery threshold below Amazon’s current $25.
These steps hit at Amazon’s greatest weakness as an online retailer: its lack of a widespread physical presence. In addition, therefore, to reducing prices and lowering 2-day shipping thresholds, Amazon will have to continue expanding the number of its distribution centers, pickup locations, and physical stores–this is the logic behind its recent $13.7B acquisition of Whole Foods.
#2: Walmart Attacks Other Prime Benefits
With 49 million paying members spending twice as much as non-members, Prime is a major cash cow for Amazon. Prime isn’t just about retail however. The program offers a slew of other perks including free movies, television shows, books, magazines, and music streaming. Walmart is eventually going to have to offer its own substantial version of Prime if it wants to draw these members away from Amazon.
Walmart would therefore be smart to partner with Netflix, Hulu, or HBO to offer similar entertainment perks through a revamped membership program. If it plays its cards right, it could develop a cheaper program with enough additional features to begin bleeding members away from Prime.
#3: Walmart Deflects Amazon’s Potential Moves into Pharma ecommerce
Industry experts have been predicting a move by Amazon into pharmaceuticals for a while now. The healthcare industry accounts for nearly 18% of US GDP, so this market would be a logical next step for the ecommerce giant to continue its growth.
To deflect this, Walmart could aggressively push its pharmaceutical weight around. As the fourth largest US pharmacy by total revenue and with thousands of pharmacies across the country Walmart is a force to be reckoned with. Should it begin offering deeper discounts on generic drugs and ramping up its online prescription services to include same day delivery, Walmart could make it extremely difficult for Amazon to get a foot in this industry.
#4: Walmart Moves into Tech
As Walmart’s ecommerce portfolio expands, it will need computing infrastructure similar to Amazon’s that is automated and standardized among all of its retail businesses. Such infrastructure will essentially turn it into a giant tech company. Walmart CEO Doug McMillon acknowledged this reality when he recently stated, “Rapid advances in technology mean we need to become more of a digital enterprise, and that’s what we’re doing.”
Building such infrastructure would also provide Walmart with another angle to attack Amazon. Like AWS, Walmart could lease out its cloud computing assets, using the profits to pay for the investment as well as subsidize its retail business.
The good news for the rest of the industry is that Walmart and Amazon’s battle for marketshare will create opportunities for other retailers and brands.
Investments made by these industry titans will lead to updated technology, the development of highly efficient supply chain best practices, and a pool of expert talent familiar with the new tech and methods. Companies with less deep pockets will reap the fruits of such innovations. We can already see this beginning to occur as former Amazon executives, such as Brent Beabout and Arthur Valdez, have begun spreading out into the industry.
Additionally, the lower prices and shipping thresholds arising from competition between Amazon and Walmart will help exacerbate the growth of ecommerce as more and more customers take advantage of these savings. For example, Amazon’s recent grab for Walmart’s low income customers could introduce an entirely new demographic to online shopping. This is a great development for companies able to take advantage of these shifts in spending habits.
In short, while it’s unclear whether Walmart or Amazon will ever be able to crush their opponent, there will be two definite winners in this clash of the titans: (1) other retailers and brands able to take advantage of the opportunities presented by this clash, and (2) ecommerce consumers, who will reap all the resulting cost and time-saving benefits.
Originally published at Practical Ecommerce: http://www.practicalecommerce.com/the-2-winners-in-amazon-vs-walmart-battle