Beat Amazon? All of a sudden, Walmart has gotten serious about this ecommerce competition. Why? It’s all about the future and the current trends. And the Walmart e-commerce strategy.
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Men like Alfred Sloan, Peter Drucker and, eventually, Michael Porter came up with important ideas about how to run a business more efficiently and create a sustainable competitive advantage. Both Amazon and Walmart are looking for these ecommerce secrets.
According to Nielsen, ecommerce will gain more ground than any other segment of the retail industry by 2017, with a compound annual growth rate of 11% each year. Supercenters come in second, with their growth rate projected at only about half that of web shopping. When you consider sales for consumer packaged goods online — food, groceries, everyday items — are more like high double digits, almost 20%, you can see Walmart’s concern.
Both chains dominate their areas of expertise. Once just a bookseller, Amazon is now the biggest online store in the world with $61 billion in 2012 revenue. Walmart is the world’s largest retailer of any kind with $469 billion 2012 revenues (estimated $7-8 coming from E-commerce in 2012).
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Walmart is doing all it can to catch up with Amazon online. But lots of obstacles exist.
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We don’t think Walmart can catch Amazon for these 6 reasons:
Amazon’s singular focus
Amazon is an e-commerce company in everything they do. They have developed all their expertise in full support of e-commerce. In fact they now do e-commerce for many other businesses. They are not hamstrung by an enormous brick and mortar business like Walmart.
No internal competition like what Walmart faces day-in day-out. Walmart doesn’t discuss this subject and probably would deny it exists. But it does. No question there. And it yields a gigantic silent advantage for Amazon.
Walmart E-commerce logistics
Logistics is what made Walmart great. But delivery is a different matter. Walmart is dabbling in same-day delivery and even going a step further than Amazon by using stores as fulfillment centers and if expanded, could turn 4,000 stores into bases for same day delivery.
Two-thirds of the U.S. population lives within 5 miles of a Walmart, and trucks crisscrossing the country arrive daily to replenish the stores, which can greatly reduce shipping costs. However, the process comes with serious limitations, particularly since it diverts workers’ attention away from ensuring stores are clean and properly stocked. But it is still a possible big advantage to Walmart if they could think like one business instead of two.
They are also attempting to crowdsource package drop-off among customers.
But Amazon has non-perishable products like diapers that its infrastructure allows shoppers to set up regularly scheduled deliveries, a service popular on Diapers.com. A fantastic feature.
And Amazon is already a step ahead with its Amazon Fresh same-day delivery, currently available in the Seattle area but soon headed for California. Amazon is building out this infrastructure for perishables. Groceries will be the battleground very soon coming to the forefront. This will further eat into solid Walmart business.
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But what is Walmart doing? They are creating a vast new logistics system that includes building new warehouses for Web orders. Hedging their bets so to speak. More illustration of the internal competition in our mind.
As Walmart’s online orders have grown, it has turned to makeshift spaces carved out of store-serving distribution centers and third-party warehouse operators to help handle the load. The extra layer added to its costs. Walmart’s online shipping can cost $5 to $7 per parcel, while Amazon averages $3 to $4 per parcel, analysts say—a big difference considering some of Walmart’s popular purchases are low-cost items like $10 packs of underwear.
Walmart e-commerce strategy … agile innovation
Amazon has existed in the ecommerce technology world since their inception. They think like a technology company and agile innovators. They are not afraid to try new things and they can get things done quickly, thanks to the culture their CEO Bezos has instilled.
The big box behemoth may not be a start-up, but it does try to think like one with its Walmart Labs division. Those groups is developing Pangaea, a global technology platform with scan and go apps that let shoppers buy in store via a smartphone, and online operations in growing markets outside the U.S. such as Brazil and China. They’re doing more new things, but they are slowed down by their legacy business and its mindset.
They are as trying out lockers, one of Amazon’s hallmarks, allowing shoppers to order items online and pick them up in stores — crucial for the Walmart demographic, a quarter of whom reportedly do not use debit or credit cards or even have a bank account. But why would an on-line shopper want to deal with the congestion of a visit to a Walmart mega store? Not us.
Walmart ecommerce strategy customer set differences
Walmart demographics, a quarter of whom reportedly do not use debit or credit cards or even have a bank account, represent a big difference with their key e-commerce competitor.
While we have not found any statistics on Amazon customer set, we speculate a much larger representation of higher end incomes among their shoppers. Big advantage to Amazon we believe, both in consumer disposable income, but also in ability to operate and shop on-line. And take advantage of frequent new technology features.
Existing in-store strategies
Walmart has an enormous and growing network of brick and mortar outlets — 4,000 in the U.S. and counting. More internationally. With those stores goes an equally enormous product offering. A blessing but an equal curse. They are a long ways on being able to put all the products on-line where they can be easily found.
At some stage these stores and product line may be an advantage for Walmart. But those are technology constrained goals that are, for now, out of reach. And that is not even considering how Walmart might solve its internal competition problems. Can you imagine the Wal-Mart cash cow making compromises in terms of revenue and profit to help their e-commerce business? Not us.
