The rivalry between Amazon & Walmart
By: Haze Ahn
2017 has been a breathtaking year for the retail industry. Last year alone, medium and big sized major retailers such as The Limited, Radio Shack, Gymboree, Wet Seal, Rue 21, Payless ShoeSource, Gander Mountain, and most surprisingly, Toys R Us had gone bankrupt. But at the same time retail giants such as Walmart, Home Depot and Costco Wholesale has been showing strong gains, and not to mention the advent of Amazon. As existing major retailers strive to defend their share of the market from Amazon, their rivalry has been gaining much interest.
Amazon has been showing dynamic sales growth from $48.08 billion in 2011 to $135.99 billion in 2016. Its online commerce sales have grown from $60 billion in 2013 to $100 billion in 2016. Walmart in contrast has been showing a comparatively slower growth, despite its massive sales. Walmart made $418.5 billion in 2011 to $478.61 billion in 2016, and its online commerce sales has been staying below $20 billion all the time.
Considering that American retail e-commerce sales were $322.17 billion in 2016 and is estimated to drastically grow up to $459.23 billion, Amazon may gradually takeover the market as more offline transactions move online. Therefore, it is imperative for Walmart to take away online market initiative from Amazon to maintain its control over the retail industry. Ironically, Amazon must acquire a well-established offline distribution network to reduce its last-mile delivery cost and cover its lacking offline capabilities. In other words, Walmart should be more like Amazon, while Amazon should be more like Walmart.
Both firms seem to be aware of their respective goals, judging from their M&A activities. Amazon acquired Whole Foods at $ 13.7 billion, finally furnishing itself a full-fledged offline sales outpost network. This acquisition will soon enable Amazon to construct their network for fresh food delivery, extorting more customers from Walmart. Walmart acquired Jet.com at $3.3 billion and named Marc Lore, former CEO of Jet.com as their head of e-commerce.
Interestingly, during the same period of time, Amazon and Walmart both acquired fashion/clothing companies, indicating that the next battleground other than traditional commerce or e-commerce is likely to be individually optimized fashion. Walmart acquired ShoeBuy, Moose Jaw, ModCloth, and Bonobos while Amazon acquired Zappos, Kiva Systems, and Quidsi. Walmart is likely to use its extremely tight-knit offline network to promote their fashion products. On the other hand, Amazon developed Echo Look that incorporates fashion and artificial intelligence to give its customers their individualized best fit.
Nonetheless, there is a reasonable criticism to such breakthroughs. Some people say that what will decide the outcome of the rivalry will not be any of the aforementioned acquisitions or innovations but simple macroeconomics, since upper-middleclass customers use Amazon much frequently as lower middle to low class customers utilize traditional retailers such as Walmart much more.
