Walmart vs Amazon: Can the $514B Retailer Outmaneuver Amazon in the Ecommerce Race?
A few years ago, Walmart seemed to struggle in the quest to pull its online act together whereas its chief rival Amazon seized nearly half of the U.S. online shopping market and snared a dominant presence abroad. Now, everything changes! Over recent years, the Bentonville, Arkansas-based behemoth has begun to evolve toward the online giant - the thing it ever desires to become. The company’s multibillion-dollar investment campaign seems to be paying off in the form of online sales that are beginning to rejuvenate the entire long-slumbering colossus.
To be more precise, based on the latest 2020 report of the retail giant, Walmart's e-commerce business in the United States grew staggeringly 97% in the company's second fiscal quarter, ended July 31. Notably, that amounts to more than $10 billion in quarterly U.S. e-commerce sales, exceeding 11% of the retail giant's overall U.S. net sales for the first time.
Notwithstanding that, there is no denying that for the time being, Amazon remains a powerful leader, with roughly 38.7 percent of the market share compared to Walmart's 5.3 percent. And in the light of the global pandemic shifting shopper's behavior for goods, dominance in online shopping is now paramount.
So, given Walmart’s strong growth potential along with such a competitive landscape, are there any chances that the world’s largest retailer catches Amazon and wins the eCommerce Crown someday in the future? Let’s go through some key strategies that Walmart has taken to in its quest to better compete with Amazon in the e-commerce wars and predict your own answer!
Walmart's Competitive Moves in The E-Commerce Race Against Amazon
#1. Walmart Plus
Perhaps the clearest competitive move Walmart takes against Amazon up to date is the launch of Walmart Plus – a new membership program offering benefits that can't be replicated online.
“These guys are toe-to-toe and nobody wants to stop swinging. Nobody wants to back down. You know, the consumer is ultimately the beneficiary, clearly,” stated Charlie O'Shea, Senior Retail Analyst at Moody's Investor Services.
Taking a closer look, the retail giant has been working behind the scenes since at least 2018 to create such a competitor to Amazon Prime. Although the Walmart Plus launch date has been delayed a number of times, reports indicate that its debut is imminent. In a recent earnings call with analysts, Walmart CEO Doug McMillon confirmed the existence of a forthcoming membership plan and shared some details on Walmart Plus indicating that Walmart is ready to move forward with its new service. Nonetheless, McMillon declined to give an official date.
"If you want delivery from Walmart frequently, it's just more efficient for the customer to buy in bulk, and that takes the form of an annual membership. And then we'll add some things to it beyond just delivery."
In the meantime, the Walmart Plus teaser website has been live for weeks, dropping a hint that the service is "almost here." Furthermore, the landing page does give a few clues as to what consumers can expect from the service when it launches, which include:
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The official Walmart Plus price has not been confirmed, but some reports suggest that members will likely pay an annual fee of $98 for benefits like unlimited same-day delivery on groceries from the 1,600 of its 4,700 plus stores that do grocery delivery now. This membership fee would make Walmart Plus cheaper than Amazon's $119 annual cost for Amazon Prime - nevertheless, there remains every possibility that Walmart Plus offers various price tiers with different perks based on the tier that consumers choose. Not only is there no official word on whether there will be a monthly option for Walmart Plus, but it's also unclear if Walmart Plus will be rolled out nationally or limited to certain states only. Actually, in the past, Walmart has debuted services in select states only before introducing them nationally.
“When we did our data study, 81 percent of the consumers joined Amazon Prime because of faster free shipping. Only two percent joined because of grocery delivery. So, I think it's a real opportunity to leverage what they already have in groceries and maybe what Prime doesn't.”
Just this mid-August, Walmart announced a partnership with Instacart – a large grocery delivery and pick-up service provider – and they did some testing out same-day grocery delivery in four markets across California and Oklahoma. Speaking of other Walmart Plus perks, the program will reportedly include early access to sale events, Walmart's new Express two-hour delivery offerings, discounts at gas stations outside of Walmarts and Walmart-owned Sam's Club stores and reserved parking spots in store lots.
“As you think about Prime, 150 million, why would you go head to head with that? If you take a unique approach, which it sounds like Walmart is doing, you might be able to get a lot of those customers”
Talking a brief look over Prime, Amazon launched this membership program for $79 a year in 2005, at a time when Walmart's profits were greater than all of Amazon's revenue - $10.26 billion compared to Amazon $8.4 billion. “If you look back at 2005 Prime had one benefit, fast and free shipping, two-day shipping, which was like unheard of.” Then, fifteen years later, more than 150 million “Primers” pay $119 a year for one-day shipping on more than 10 million items (with no minimum purchase amount), same-day shipping on some three million items, and two-hour grocery delivery in 2,000 plus cities, deals and sales events like Prime Day and access to Amazon's entertainment branch, Prime Video, Amazon Music, Prime Reading, Prime Gaming and Amazon Photos.
Meanwhile, now that Walmart sold the Vudu streaming service to Comcast's Fandango in April, it is yet to have any entertainment offerings of its own.
What’s also worth noting that Prime members make up about 65 percent of Amazon's customers and the program has a 95 percent renewal rate after two years. Walmart did start chasing this type of loyal customer in May 2019 by offering free next-day delivery on orders over $35, less than a month after Amazon announced its default one-day shipping. With the forthcoming inception of Walmart Plus, it’s expected that all orders will default to free one-day shipping just like Prime.
#2. More Inventory with Jet.Com
Despite the launch of Walmart Plus and free fast shipping, Walmart still lacks one big thing that Amazon has - the sheer volume of inventory. The Arkansas-based behemoth has about 50,000 vendors selling items online, while Amazon “boasts” staggeringly 8,700,000. That explains why in 2016, Walmart bought Jet.com - a discount online retailer – in the 3.3 billion dollars deal.
The acquisition brought relationships with a slew of brands that were already comfortable selling on Jet.com. “They are on track to more than quadruple their online business since they acquired Jet,” told Liz Dunn, CEO and Founder at Pro4ma.
Marc Lore, CEO of Jet.com, also shared, “E-commerce is a scale game and you want to get as much leverage as you can on your fixed infrastructure. And as you get bigger, the cost of goods goes down and you get more leverage.” Marc Lore spent two years at Amazon before breaking off to start Jet.com, working to undercut prices from the e-commerce megastores.
Actually, Walmart's decision to acquire Jet.com was considered a dramatic move that brought it into the big leagues of online shopping. Then, Walmart winds down Jet.com in May, yet, it had already brought an entirely new branch of online sellers onto its marketplace. Speaking of this, the Walmart CEO Doug McMillon shared he would buy it all over again. “If you look at the trajectory of our business, it changed when we made that acquisition and we've been able to attract brands to Walmart.com - S'well, Ray-Ban, and Champion.”
#3. The Decision to Allow Outside Sellers and Team Up with Advance Auto Parts and Shopify
Historically, Walmart didn't sell things from third-party vendors, but since the Jet.com acquisition, the number of products sold on Walmart.com has grown up to 10 times higher, and the number of sellers on its site did double just in the last year (over 3,000 in this July). “So, they started attracting more brands. They retooled their website to be more streamlined and more intuitive, more user-friendly,” told Liz Dunn.
Another noteworthy strategic step Walmart took is its partnership with Advance Auto Parts established last year. As Charlie O'Shea said, “Walmart was not going to be a 100,000 SKU auto parts retailer on its own. They get that with Advance Auto. This is probably the largest third-party relationship that any online retailer has with a brick-and-mortar retailer.”
Furthermore, in an effort to reach a new type of customer, Walmart spearheaded the purchase of several specialty apparel companies such as Bonobos, ModCloth, and Eloquii, despite the fact that some have been sold again since. “A big portion of Walmart store customers are lower-to-middle-income. I think what they tried to do here and through the Jet.com brand was to continue to go upmarket and go for more profitable customers, urban millennials. And then they also introduced the service Jetblack, which is an upscale personal shopping service,” told Andrew Lipsma, marketers Principal Retail Analyst.
Actually, for a large fee, Jet-black once allowed Walmart customers in New York to text orders to personal shoppers for home delivery. However, this service got to shut it down in February after Walmart only saw around 600 active members. “If we think about the dynamics of the very, very affluent and wealthy today, I don't know if Walmart is necessarily the company to be housing a brand like that.”
Notwithstanding that, in June, Walmart did pivot again, announcing a major partnership with Shopify – the world-renowned commerce platform - to take on the common rival. Often referred to as the king of mom-and pop-retailers, Shopify has empowered more than 1.4 million SMBs to run their online stores. Now, these businesses have a channel to try selling on Walmart.com – particularly, Walmart says it's adding 1,200 of Shopify's top merchants to its site in 2020.
“This integration will allow approved Shopify sellers to seamlessly list their items on Walmart.com, which gives Walmart customers access to a broader assortment,” said Jeff Clementz, vice president of Walmart Marketplace.
On Shopify’s side, the deal is a way to offer its sellers a much bigger potential client base and bolsters Shopify’s value proposition that sellers don’t need to turn to Amazon: Walmart’s website gets about 120 million visits per week. generally, Shopify merchants in the U.S. will have to apply to sell through Walmart.com. If approved, they’ll connect their Shopify store to their Walmart Seller Account, which will sync their product catalogs and create product listings on Walmart.com. This will keep inventory and order management, as well as listings, on their Shopify supported site and Walmart.com harmonized.
Commenting on such a partnership decision, Charlie O'Shea shared, “Walmart wants a curated assortment on the website. I mean, Amazon has a very wide-ranging third-party business, and with that comes some risk.” Liz Dunn also expressed her standpoint, “the partnership with Shopify is really important, I think it's very strategic. And I do think it is an attempt to pull away from those third-party sellers on Amazon. There has been kind of a lot of tension between third-party sellers and Amazon.”
To be more specific on that, on July 29th, Jeff Bezos testified before Congress for the first time in Amazon's 26-year history, partly in response to questions about the reported use of third-party seller data to launch Amazon's own competing products. The House Judiciary Committee is investigating whether Amazon, along with Apple, Facebook, and Google, needs to be governed by stricter antitrust laws. “Why should a third-party so list their product on Amazon if they're just going to be undercut by Amazon-owned product as a result of data you take from them?”
Although Amazon is struggling to establish and maintain the trust of its third-party sellers, it’s undeniable that still, Walmart has a long way to go, should it wish to catch up with the millions of third-party sellers that make up more than half of Amazon's sales. “The Walmart marketplace is a lot smaller, so you could be, quote-unquote, crushing it on page one on Walmart and you're still not getting that many sales,” said Bradley Sutton, Amazon Strategy Specialist at Helium 10.
Notable Walmart’s Competitive Advantages
Given those outstanding stumbling blocks Walmart comes up against in its E-commerce’s race, there do exist a couple of secrets weapons behind the retail giant’s staying power that could probably outmaneuver Amazon.
#1. Being the World's Largest Brick-and-Mortar Retailer
Beyond any doubt, Walmart does own one huge and long-standing advantage over Amazon - its 11,500 global brick-and-mortar stores.
“If you're a third-party seller like if you can get into brick-and-mortar Walmart, you're going to crush whatever sales on Amazon you're doing,” shared Bradley Sutton.
In fact, for sellers considering where to reach customers, physical stores are a big bonus and much more scalable. For instance, at a “…diet pill company I worked at, they had 30 different products that we were selling on Amazon. I launched a whole bunch of them. We brought their sales from one million to three million. And I thought that was like the greatest thing in the world. But that was nothing because I would see purchase orders come across my desk for the Walmart brick and mortar side, for the Walmart stores, there would be like two million dollars just for like one region of the United States,” Bradley Sutton went on to exemplify.
In addition to such revenue scalability, Walmart stores also enable merchants to keep down its costs in the most expensive area of online retail - shipping. As Harris Diamand, Vice President Customer Experience at 1WorldSync said, “if you can leverage those stores as your fulfillment centers, meaning if I'm going to purchase something and I'm in the Philadelphia area, [I’ll] have it come from the store that's three blocks from my house as opposed to Virginia, you know, price points go down and speed goes up.”
Whereas the E-commerce leader Amazon has been making the wild investment in testing and controlling the costly shipping process, its 175 fulfillment centers and owned network of planes, trucks and contracted delivery drivers will not likely come close to the reach of Walmart's whopping 4,700 stores that allow its trucks and drivers to travel a fraction of the distance. “Walmart had the advantage of getting a product from the distribution center to the store, and then the consumer handles the last mile for a lot of it.”
In practice, while leveraging its stores as distribution centers for products, Walmart also has established its own dedicated network of warehouses without a front-facing store.
#2. Owning the Power of Grocery
"When it comes to grocery, Walmart doesn't need to adapt to Amazon," Forrester Research analyst Brendan Witcher said in an interview. "In grocery, it's quite the opposite.”
Undoubtedly, the world’s largest retailer remains dominant in another sector that's largely dependent on brick-and-mortar stores - groceries. “We're not very densely populated, and so it's hard to service, in an e-commerce model, grocery.” Liz Dunn added, “so what that means is that Amazon is really at a little bit of a disadvantage relative to Walmart. They have stores within 90 percent of the population in the United States.”
According to research and analysis firm Dazeinfo, Walmart Grocery business in the US accounted for a whopping 65.5% of the company's total US net sales in FY Q3 2020, making Walmart the nation's biggest grocer. To trace back, Walmart's been selling groceries directly to customers since the '80s, and the online sale of groceries is now boosting Walmart's overall online sales.
Notably, Walmart has always been a savvy user of technology in its stores, driving productivity gains that helped it cut prices, which in turn made it the dominant retailer in America by the time Amazon launched in the mid-1990s. The Food Marketing Institute study also reveals that several of those same characteristics — especially the ability to control inventory management and crunch consumer data, at which Walmart excels — are the keys to success in online grocery. That push to invest in back-end technology is continuing now and will help the push to build up Walmart’s e-commerce business. In fact, the percentage of all U.S. grocery sales happening online is set to double from 20 percent in 2019 to 35 to 40 percent this year and beyond.
“You find your grocery vendor and you tend to stick with them. You also get a treasure trove of data from grocery customers about their preferences. And you can use that data, and I believe Walmart will use that data, to sell them other things.” Commenting on it, Liz Dunn expressed her belief, “I think that Walmart is going to win in this grocery battle versus Amazon.”
When Amazon acquired the Texas- headquartered supermarket chain Whole Foods for 13.7 billion in 2017, it was a clear move to compete with Walmart. Yet, with roughly 475 stores, Whole Foods only has about a tenth of the locations as Walmart does in the U.S. “You cannot find a tougher brick-and-mortar segment to get into than food. You've got to manage a million vendors - produce is hard and meat is tough. And they chose to get into that business. They're still learning.”
Then in 2019, a month after Amazon announced free two-hour grocery delivery for Prime members in 2,000 regions, Walmart announced a membership program offering unlimited grocery deliveries from 1,400 stores. “Digital grocery is the next big battleground in e-commerce. It's one trillion-dollar retail category that is today the least penetrated category online. So, as it continues to grow at outsized rates, there are tens of billions of dollars at play,” said Andrew Lipsma.
Additionally, one survey conducted before the pandemic does reveal that more or less 39 percent of U.S. consumers reportedly have shopped online for groceries at least once - by May, that figure was nearly 80 percent.
Yet, “how many people are going to go back to conventional shopping or how many people are going to stay with buying their staples online because they can?” This question remains unanswered.
#3. Smartly Navigating The COVID-19 Pandemic Situation
First of all, whereas the pandemic boosted the significance of fast grocery delivery, Walmart has an even faster, more cost-effective option - curbside pickup. In addition to this, Walmart also offers other convenient delivery features that keep shoppers out of stores, including grocery delivery and the ability to have shoppers’ groceries loaded directly into their car. Whereas this is an option at Whole Foods stores, shoppers need to wait for regular Amazon.com purchases to be delivered.
In July, Prosper Insights & Analytics’ report indicated that roughly 62 percent of adults are shopping in stores less. And as the corona outbreak results in social distancing and pushes so many individuals to go online for their shopping, Walmart's name recognition with older shoppers is also a strong plus. After all, “when forced to purchase things online, you're going to go with who you know and who you trust.”
Notably, during the pandemic, Walmart did hire 200,000 employees to help clean stores and keep items in stock – which is giving a third round of bonuses to hourly employees working during the pandemic for a total of 1.1 billion dollars in bonuses this year while facing backlash for sick and dying workers. Now, for the first time in its 30 years, Walmart will be closed on Thanksgiving Day and also cutting some corporate roles as it merges its online and store businesses.
Amazon, in the meantime, decided to postpone its annual Prime Day event that usually sets sales records in July. Besides, it offered one-time bonuses to front-line workers totaling 500 million dollars and gave workers a two dollar-per-hour raise from March to May. Although the E-commerce leader hired 175,000 workers to keep up with demand during the pandemic, it still faced backlash for keeping all its warehouses operational despite worker deaths. Yet, in the second quarter of 2012, Amazon's first-party sales were up 48 percent year-over-year, with third-party sales up 52 percent. Walmart's online sales rose 74 percent in the first quarter of 2020.
“I mean, you could argue during the pandemic that Walmart's taken a bit of a lead because they haven't publicly had the delivery delays, the product to the consumer delays that Amazon has had,” shared Charlie O'Shea.
The Bottom Lines
Beyond any doubts, Walmart has gone to great lengths in its effort to take the fight to Amazon Prime for the e-commerce throne. Whereas Amazon does own key advantages within such a race, there exist golden opportunities for Walmart to bring the in-store and online arms of its business together to be at the top of the game.
So, could Walmart possibly catch Amazon in E-commerce someday? Actually, no one can answer that question with any certainty – what is definitely certain is that Amazon and Walmart are both reshaping the retail landscape and encouraging each other to continue to grow and develop!
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