Is Amazon acting like Walmart in the eighties?

Discussion
Mar 24, 2016
Tom Ryan

Amazon’s investments in trucks, planes, cargo boats and drones continue to drive speculation on whether the company is building a full-scale delivery platform. But an RBC Capital Markets analyst has drawn attention by likening the moves to Walmart’s shift to tighten supply chain costs three decades ago.

“At the core, we think the decisions Amazon is making today parallel those made by Walmart during the 1980s, as the company began to integrate itself more fully with its suppliers to aggressively reduce costs across all aspects of its business, especially the supply chain,” wrote John Barnes in a note last week. “This can accomplish two things: reduce costs in any way possible and ensure that customers receive goods in a timely manner year round.”

The analyst, who covers UPS and FedEx, said building freight transportation capacity will reduce costs, “create deeper customer relationships,” and keep carriers “honest” around pricing and service. He sees a medium-term risk for freight forwarders and truckload carriers since Amazon’s computer prowess may enable them take over these tasks. Parcel carriers may face a longer-term risk because “a full-blown Amazon parcel delivery operation would likely take years to complete.”

A host of articles around Amazon’s delivery ambitions arrived a week before the note after Amazon confirmed that it was leasing 20 Boeing 767 freighter aircraft to support one and two-day delivery.

Last week on its third-quarter conference, Mike Glenn, president of FedEx Services, said it would require “tens of billions of dollars in capital and years to build sufficient scale and density to replicate existing networks like FedEx.” He said Amazon remains a “valuable customer” and their capacity concerns are being constantly discussed.

On its fourth-quarter conference call in late January, Amazon insisted the logistics investments would only supplement existing carrier partners.

“Those carriers are just no longer able to handle all of our capacity that we need at peak,” said Brian Olsavsky, Amazon’s CFO. “They have been and continue to be great partners.”

Photo: Amazon.com

DISCUSSION QUESTIONS: Does it make sense to compare Amazon’s recent logistics investments to Walmart’s supply chain initiatives in the eighties? Should UPS or FedEx be concerned that Amazon may at some point bring parcel delivery in-house?

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Braintrust
"It’s a reasonable analogy. Amazon has always leveraged partners and third parties to minimize risk and accelerate speed to market."
"It is a valid comparison at least in the way that Walmart’s logistics investments had clear and immediate ROI at the time of their creation."
"Amazon’s move to vertically integrate its supply chain to reduce costs and improve control of distribution, is driven by the same objectives as Walmart’s initiatives."

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20 Comments on "Is Amazon acting like Walmart in the eighties?"


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Keith Anderson
Guest
3 years 8 months ago

It’s a reasonable analogy. Amazon has always leveraged partners and third parties to minimize risk and accelerate speed to market.

Now that the contours of its business are clearer, Amazon is investing to own strategic elements of its supply chain. As RBC’s analyst notes, this will yield cost savings and greater control.

Dick Seesel
Guest
3 years 8 months ago

There is some comparison to Walmart’s history as Amazon works to take tighter control over its supply chain. The difference is that Walmart’s initiatives were primarily driven by lowering cost and, in turn, by grabbing market share when they dropped prices in their stores. Over the long run, Walmart’s cost savings on logistics have not translated into better store execution.

Amazon is committed to being price-competitive, of course, but is equally driven by its brand promise of great execution. Instead of being at the mercy of second-party carriers (UPS, FedEx, USPS and so forth), Amazon would rather control its own destiny.

Paula Rosenblum
Guest
3 years 8 months ago

Amazon is a lot like Walmart, but some of its “logistics investments” are more like PR ploys to keep investors happy. I’m not sure it’s like the Walmart of the ’80s as much as it’s the Walmart of the early 2000s. Adding lines of business is an attempt to extend that market, just like adding grocery was Walmart’s way of extending their market.

Amazon’s investors are starting to expect profits. It can’t keep buying business (sadly, for junkies like me) and the company is smart enough to know there is a point when it will get to the top of its addressable market. So it will start doing whatever it can to cut costs.

Still, when all is said and done, no one wins in a race to the bottom. No one.

Adrian Weidmann
Guest
3 years 8 months ago

Walmart’s core value is not that of a retailer but its expertise and proficiency in logistics. In order to maintain their growth and meet the expectations of their shoppers, Amazon is indeed investing in its capabilities to support its supply and delivery chain. UPS and FedEx, like everyone else in the retail ecosystem, should be wary of what Amazon does. They must search for processes, methods and systems to maintain their competitive relevance and edge.

UPS and FedEx should definitely be considering and experimenting with using its existing infrastructure, including its delivery drivers, to deliver straight to the aisle and not stop by merely delivering to the loading dock.

Tom Redd
Guest
3 years 8 months ago

Maybe the late ’70s when The Limited was making clothes on the ships bound for the U.S. Planes are as old as the DC-9 for SCM. Amazon is way outdistanced from Walmart in the ’80s. Why? The shopper did not change fast in the ’80s and today that shopper may spend less on Amazon next year and more at real stores or a new website. The trend fluctuates and thus your SCM system and financials need to be able to deal with that change.
Glad The ‘Zon is catching up, but having the ducks in a row does not make it a true, synchronized, high-speed SC fly. It is the people and the commitment to the shop that makes it work. Walmart has that. Does Amazon?

Mark Heckman
Guest
3 years 8 months ago

It is a valid comparison at least in the way that Walmart’s logistics investments had clear and immediate ROI at the time of their creation. It would appear that Amazon has done the math and decided that vertically integrating as opposed to relying chiefly on outsourcing their distribution provides a faster and more profitable way forward.

The caution with acquiring your own “planes, trains, and automobiles” is that they are all depreciating assets that could very well be a detriment if and when their business peaks, begins to retract or grow at a slower pace.

It should be added that owning stuff is great as long as it provides a return. The fact that even the great behemoth Walmart is closing stores this year should be fair warning to Amazon that what might appear to be wise today could be tomorrow’s regret.

Chris Petersen, PhD.
Guest
3 years 8 months ago

In some ways Amazon’s scaling of logistics is similar to Walmart’s, but in one very important way it is different.

Like Walmart, Amazon needs to have more quality control of logistics in order to deliver on its brand promise of reliability. Like Walmart, the ability to cut the cost of delivery creates a competitive advantage.

What is different in today’s omnichannel environment is the consumer demand for both speed and convenience. Consumers are expecting two-day delivery, and even delivery in hours, to their door. The big carriers have shown that they have capacity and reliability issues in periods of peak demand like holiday.

Amazon is consumer-centric. Walmart is product-centric. Quicker, reliable delivery for the last mile is at the core of Amazon’s long-term competitive strategy. For Amazon leveraging the last mile is a strategic advantage.

Yes, Amazon will take business from UPS and FedEx. The question for national carriers is whether other online players will rapidly scale to offset Amazon going in-house.

Ross Ely
Guest
3 years 8 months ago

The comparison makes sense to the extent that both companies reinvented (and are reinventing) their logistics operations to revolutionize their industries. Comparing Amazon’s recent moves to Walmart’s initiatives in the ’80s seems to imply that Amazon is following an old strategy when in reality they continue to innovate and disrupt the retail industry.

UPS and FedEx should watch Amazon’s moves very closely and secure their partnerships with Amazon. The threat of losing Amazon’s business is likely more long-term vs. short-term, but the established carriers need to demonstrate their commitment to improving service and lowering costs.

Joe Saumweber
Guest
Joe Saumweber
3 years 8 months ago

Innovation within logistics is likely more about consumer demand for instant gratification as it is about streamlining costs. One of the remaining reasons shoppers still go to a store is because that is still the fastest way to get a product in hand.

Ultimately the ability to meet consumer expectations of immediacy is core to the success of Amazon’s model going forward. It’s too important of a strategy to leave up to their logistics partners. This is Amazon taking matters into their own hands to ensure they own the IP that shapes the future of product delivery.

Adam Herman
Guest
3 years 8 months ago

I think this is an excellent parallel. Walmart nearly single-handily reinvented the supply chain and it set them apart from all other retailers for the next two decades. Amazon would be wise to take a page from this playbook. The more aspects they can control between marketing, merchandising and distribution, the more they will dominate retail in the future. Really watch out if they make the leap into manufacturing, although I don’t see that happening in the short term.

As for UPS and FedEx, yes they should be concerned. Amazon has shown again and again, that they disrupt and/or dominate whatever field they move into. First they will start moving their products only, but as their fleets grow and they have “room” in cargo for other product, they will lease space to other retailers and become shipping competition to UPS and FedEx. While this may also be down the road, Amazon is great at taking the long-term view and eschewing short-term profits for future market dominance.

Shep Hyken
Guest
3 years 8 months ago

Yes, you can compare Amazon’s recent logistics investments to Walmart, or any successful case study that resembles what Amazon is doing.

Should UPS, FedEx (or other shippers, as in USPS) be concerned? Yes. Anytime you lose a major client/customer or see a big dip in sales, is cause for concern. While this isn’t going to happen overnight, it needs to be dealt with today. Discussions with Amazon would be very appropriate at this point. Like any company, the shippers need to have a reasonable handle on future sales to help forecast for operating and capital costs.

Gene Detroyer
Guest
3 years 8 months ago

The comparison is in the strategy. Adrian nails it and few people understand this … “Walmart’s core value is not that of a retailer but its expertise and proficiency in logistics.” That value goes back to the original days of Sam Walton. I start my lectures about Walmart with “Walmart is not a retailer.” Walmart’s mission is not to fill their stores with truckloads of products and bring customers in to buy them, it is to provide their customers with the goods they want in an efficient and simple manner and at the least possible cost. That starts with the logistics and nowhere else.

You can look at Amazon the same way. Yes, they sell products, but they are not a retailer. They are a service provider that is customer-centric. At Amazon, they endeavor to give the customer whatever they want or need in a simple, convenient and responsive way. This is the thinking that took Amazon from a company selling books to streaming videos.

Peter Charness
Guest
3 years 8 months ago

How many things can a company be great at? I buy the idea that Amazon is a logistics company that happens to use that network to efficiently move products to customers at retail. However, they are also a book manufacturer, a movie/TV company, now a fashion brand company. A major difference with Walmart is that once you get under the covers you realize that Walmart chose to do some things well, but relied heavily on their suppliers as partners (some would not describe the experience as wonderful) to manage some very key aspects of the business such as assortments, category management etc. Amazon seems inclined to try to do it all themselves. I question that capability over time.

Herb Sorensen
Guest
3 years 8 months ago

This is only one significant part of the global efficiency movement that is roiling retail. Amazon is already moving aggressively in food — always the cutting edge of global retail dominance.

There continues to seem to be wide spread, not ignorance, but ignoring of the fact that self-service retailers are merchant warehousemen with unpaid stock-picker shoppers. Whereas self-service retail was at the cutting edge of a massive efficiency movement 100 years ago, today it is those tens of thousands of grossly inefficient “neighborhood” warehouses that are the target of a new wave of efficiency, Amazon in the forefront. See: The Problem: “Parked” Capital.

These HUGE facts are being ignored at mortal danger by lots of businesses, apparently because lots of other businesses are ignoring them, too. This is what led to Schumpeter’s creative destruction 100 years ago, and is doing so again right now. Efficiency trumps everything, and inefficient shopping and local warehousing (stores,) with their management of pallets, is being trumped by Amazon’s management of items. Core business issues. Ding, ding, DING!!! 😉

Ken Morris
Guest
Ken Morris
3 years 8 months ago

Amazon’s move to vertically integrate its supply chain to reduce costs and improve control of distribution, is driven by the same objectives as Walmart’s initiatives. Beyond the potential cost savings, greater control of the delivery network will also enable Amazon to better manage delivery commitments and keep its customers satisfied.

While Amazon claims that this is just a move to augment services from their “great partners” UPS and FedEx, it wouldn’t surprise me if the “real” goal is to completely displace UPS and FedEx. Amazon and Walmart have a history of crushing any competition and UPS and FedEx could be considered competitors very soon. They have learned all they can from their partners and now comes the move to crush them by understanding how they can deconstruct the process to eliminate redundancy, decompose the cost structure and in-source where possible and only outsource to UPS and Fedex where and, more importantly, when necessary.

Lee Kent
Guest
3 years 8 months ago

In a word, NO! Amazon has been very smart in their logistics approach by partnering with logistics providers who were already up to scale. The moves they are making now appear to me to be just as they say, supplements for capacity.

UPS and FedEx are too far ahead in the game for Amazon to dream of taking them on and succeeding.

For my 2 cents.

Brian Kelly
Guest
3 years 8 months ago

WMT success in supply chain came in 3 ways: IT, vendors and shipping. All 3 were optimized and integrated. All of it improved the right goods in the right store at the right time. AMZN is investing in shipping to deliver goods to consumers.

Similar and different.

I agree with Paula, this is like the “drone story.” Nice PR but will it matter to consumers?

As we like to say, “retail ain’t for sissies.”

Kenneth Leung
Guest
3 years 8 months ago

Amazon’s logistics investment is designed to create a sustainable advantage in delivery to consumers similar to what Walmart did for delivery to store. As long as the volume is there, it makes sense for Amazon to continue to manage cost of goods sold and customer experience better for delivery.

In terms of whether UPS and FedEx will be cut out 100%, I doubt it, as along as they provide value and capacity, since they have a longer history and more infrastructure than Amazon.

Vahe Katros
Guest
Vahe Katros
3 years 8 months ago
Here is another take on this question: the key behavior that Amazon is exhibiting relates to the manipulation of bits — it’s the work around automation that is the DNA strand of note. The expression “history doesn’t repeat, but it rhymes” comes to mind. Walmart’s success was a byproduct of Sam’s embracing Continuous Replenishment in 1988 after Kmart dropped the ball in their collaboration with P&G (thank you Schnuck’s Markets in St. Louis). CR became the foundation for Efficient Consumer Response, Category Management and so on — the innovations that transformed retail. The thread relating to Vendor Managed Inventory and Retail Link began in the ’80s so while investment in the physical and visible is noteworthy, the real action, the disruption happened in rethinking the boxes and arrows. It’s the bits that changed the world. But your 1980s comparison is legit regarding AMZN now, and WMT then. AMZN implemented the systems architecture that pushes Continuous Replenishment to the refrigerator through Amazon Prime subscriptions, Alexa, Amazon Dash and someday IoT… AMZN still hasn’t reached the equivalent of the… Read more »
Kai Clarke
Guest
3 years 8 months ago

No. This is a different time and different business. Logistics have changed, as have the customers they support.

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Braintrust
"It’s a reasonable analogy. Amazon has always leveraged partners and third parties to minimize risk and accelerate speed to market."
"It is a valid comparison at least in the way that Walmart’s logistics investments had clear and immediate ROI at the time of their creation."
"Amazon’s move to vertically integrate its supply chain to reduce costs and improve control of distribution, is driven by the same objectives as Walmart’s initiatives."

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