CNBC: How Walmart Is Betting Big On Stores To Catch Amazon In E-commerce

CNBC has a new clip that focuses on the e-commerce battle between Walmart and Amazon. Have a listen and I’ll share my thoughts below.

There is a lot to unpack here. From my point of view, this is a great business case study with each company having its own advantages. Let’s start with Walmart.

Walmart undoubtedly made progress on the e-commerce front and the pandemic was, ironically, a welcome booster. There are several factors in favor of the iconic supermarket brand. The first is that merchants want to diversity distribution to reduce reliance on Amazon and Walmart is currently a great alternative. Lesser competition alleviates the price pressure on merchants’ shoulders and they can have a better margin on Walmart’s online store. While this factor holds, I don’t imagine that Walmart wants to maintain it in the future. The company definitely wants to attract more merchants to its online store front as the more choices it has, the more valuable as a shopping destination it will become to shoppers. Hence, this so-called advantage is unlikely to persist.

The second advantage on Walmart’s side is its network of more than 4,000 stores in the US. These stores can serve as revenue centers as well as distribution hubs for online orders. Think about it this way. The cost of building a store is fixed. The more products are cycled through that store, the more money Walmart makes. Plus, because stores are scattered throughout the US, they can deliver online orders to consumers much faster than by mail. Faster deliveries make customers happier. Although Amazon has its own network of fulfillment centers, they are different from Walmart stores in that they exist to fulfill orders and do no generate any revenue on the side. The e-commerce behemoth has been building out its cashierless stores across the US, but there are a few concerns that make it difficult for me to envision Amazon closing the gap in this area:

  • Would the Amazon Go stores be big enough to help fulfill online order?
  • If they get big enough, what does that mean for all fulfillment centers that Amazon painstakingly built?
  • How long would it take for Amazon to deliver orders from Amazon Go?

Then, there is grocery. It is a low-margin and tricky-to-handle category as many items are perishable, but it’s a staple that every household needs regularly. Consumers want good groceries at affordable prices and, on top of that, convenience. They can order groceries on Walmart.com and pick them up at the closest stores. Isn’t it better than to wait 2 days for an Amazon delivery? In the video clip, you can see Walmart has a program that brings grocery orders straight to customers’ fridge. To some customers, that’s just magic. While shoppers can technically place an order online and pick it up at Whole Foods, their bill will be a lot higher than at Walmart. The Arkansas-based company has always been the leader in this low-margin category with its unrivaled scale. In tough economic times like right now, consumers even want to keep their grocery bills as low as possible. If consumer preferences towards private labels change for the better in the future, it will play to Walmart’s hands even more. I don’t imagine that Amazon will catch up on this front any time soon.

Last but not least, fuel! Americans love to drive and to drive, they need fuel. This is another way that Walmart and its network of stores, including Sam’s Club, can build a relationship with customers. It’s not surprising that Walmart+ customers can get a few cents off per gallon at participating gas pumps. Unless Amazon invents a way to fill a gas tank digitally, they will have to establish physical presence like Walmart to negate this advantage that its rival has.

But it’s not all rosy for Walmart. Amazon is still the go-to destination when it comes to e-Commerce. Walmart’s desperation to catch up is evidenced by its acceptance of merchants that were kicked out by Amazon because they tried to defraud customers with fake reviews. Yes, it’s great that some merchants flock to Walmart since there is less competition. Nonetheless, who is to say that when Walmart scales its online front and boards more sellers, the existing merchants still feel the same way? When all other factors are equal and the deciding element for merchants is which platform will bring the most revenue, can Walmart attract sellers the same way as Amazon does? Will sellers be motivated enough to manage their presence on two online stores?

Additionally, what about consumers? Amazon routinely adds benefits to Prime membership to keep a firm hold of its most coveted clientele. Soon, Prime subscribers will be able to watch NFL live. Its Prime video collection with hits such as Jack Reacher, The Tomorrow Wars and Jack Ryan, I believe, already draws interest from consumers. There are also Prime Day, Amazon Music, Prescription Delivery etc…Once consumers are hooked on a Prime membership, it’s unlikely that they will go somewhere else to shop. The question to Walmart is whether they can make Walmart+ as good as Prime. Since we haven’t heard any official statistics on the number of Walmart+ subscribers, the jury is still out on how good this loyalty program is. Still, I don’t think it can be considered an equal of Prime any time soon.

All in all, this rivalry is exciting to follow. The companies seem to follow different paths towards domination and for now, I don’t know which one will come out on top and if this is even a winner-takes-all situation at all. For instance, I’d give advantage to Walmart in grocery items and to Amazon in non-grocery items. Consumers may as well get groceries from Walmart and buy everything else from Amazon. Both will have some success taking share from the other, but each will maintain its stronghold. That’s definitely a possibility.

One thought on “CNBC: How Walmart Is Betting Big On Stores To Catch Amazon In E-commerce

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.