Amazon vs. Walmart – The Tide Has Turned
For the past 10 years, it’s been a foregone conclusion that Amazon would soon take over the retail world. As proof, in 2017 Forbes.com published an article titled “Walmart Will Never Beat Amazon”.
But, as with everything, nothing is so certain. Just two years later, the author who published “Walmart will never beat Amazon” has published a new article for Forbes (March 2019) titled “Walmart And Target Beat Amazon” .
So, what has changed to turn the tide against Amazon? It comes down to three things:
First, the retail world has committed a lot of resources and made strides to narrow Amazon’s advantages.
Technology surrounding their pricing model and search algorithms, unlimited product offerings, quick delivery, along with Amazon’s ability to sell products cheaper due to their lack of store overhead were keys to their success.
But brick and mortar retailers have started to figure out .com and turned the negatives of large formats and vast numbers of stores into advantages by utilizing stores as virtual fulfillment centers. Additionally, it’s become clearer that brick and mortar has a lock on pharmacy, alcohol, and perishable products. In Walmart’s case, they have stores within five miles of 70% of the U.S. population, and the adoption of curbside pick-up programs is a big win for them against online challengers.
Kroger and Target have taken notice and both have revitalized their business and are showing signs they are strengthening.
With 15,000 stores, Dollar General is a name that gets mentioned a lot in Walmart circles as a dark horse competitor that is well-positioned.
The U.S. Chamber of Commerce estimates that only 2-5% of the U.S. grocery retail market is done online and that by 2023, the number will still be less than 10%. To continue to succeed, Amazon will have to make huge investments in brick and mortar going forward.
Second, Amazon has never really been leading in retail despite perception.
Their trajectory has been undeniable. The problem with the trajectory, however, is that sales growth has been achieved without profitability. Amazon became profitable in 2016, but even so, most of its revenue comes from Amazon Web Services, which makes up 58% of Amazon’s operating income.
Another element that aided in Amazon’s rapid growth trajectory was slow ecommerce regulation which allowed Amazon to avoid substantial taxes not afforded to traditional businesses and therefore provided them pricing advantages.
Expect more pressure on profits as state and federal regulations close ecommerce loopholes that have allowed Amazon to pay $0 in taxes the past two years, while Walmart paid an effective tax rate of 30% ($3.2 billion) to the U.S. government in 2018.
As other retailers adapt and the cost to obtain store fronts increases, the confidence Wall Street has in Amazon’s ability to monetize their customer base may change.
Third, Amazon’s dream is too big.
Beyond competing with the world’s leading retailers, Amazon now finds itself battling in many industries from media to spaceships with the top companies in the world such as Apple, Microsoft, Google, Tesla (SpaceX), Oracle, Netflix, and Disney in addition to Jeff Bezos’s political ambitions.
Amazon will be here for a long time, but the pendulum has swung and their once-presumed world domination will have to wait. For the time being, there is room for hundreds of retailers to succeed.
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