Walmart sets sights on Amazon

Discussion
Oct 16, 2014

With foot traffic and sales at its U.S. stores continuing to disappoint, Walmart continues to look for answers to build its business anywhere it can. One response has been to invest more in e-commerce and digital operations. Yesterday, the company said it plans to invest even more over the next year.

The investments will be between $1.2 billion and $1.5 billion in its next fiscal year, up from roughly $1.0 billion this year. The company plans to use the money for technology, infrastructure and other areas it believes will support e-commerce and digital initiatives.

Walmart is building two new online fulfillment centers, each over a million square feet in size, in Georgia and Pennsylvania. These new facilities, according to the company, "will be part of its next generation fulfillment network that includes dedicated online fulfillment centers, shared distribution centers, and ship-from-store locations that are all tied together by one of the biggest and most efficient transportation networks in the country."

The retailer has seen big gains in its online business. Reports earlier in the year made a big deal of Walmart.com’s year-over-year growth (30 percent) topping Amazon.com (27 percent) for the first time.

As it has done in the physical stores, price is a big part of Walmart’s plan to compete with its rival. According to a recent study by Wells Fargo and 360pi, Walmart (and Target) had lower prices in key categories such as clothing, electronics and housewares than Amazon.

"We are delivering best in class e-commerce capabilities that we are combining with the assets of the world’s largest retailer to engage with customers in new ways," Neil Ashe, president and chief executive of Walmart Global ecommerce, told attendees of the company’s 21st annual meeting for the investment community. "We have delivered the core components of our new global technology platform. We are expanding our next generation fulfillment network to reach our customers fast and efficiently, and we’re building new data capabilities to enhance our customer experience"

Will Walmart’s digital and e-commerce initiatives create more serious competition for Amazon? Will growth in these areas compensate for the company’s struggles in its supercenter business?

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19 Comments on "Walmart sets sights on Amazon"


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Dick Seesel
Guest
7 years 7 months ago

If anybody can leapfrog past Amazon in the areas of food and consumables, it’s Walmart. The company is correct in making the kinds of investments in infrastructure, logistics and systems to make this happen. But Walmart will need to think about more than pricing—they need to move faster on service initiatives like BOPIS and grocery home delivery. They start with a tremendous advantage of a massive brick-and-mortar footprint capable of operating as a network of mini-distribution centers.

But Amazon has its hands in so many product categories that they will continue to dominate the overall omni-channel arena. Because of Walmart’s focus on opening-price goods, Amazon has an array of categories and brands that are simply not available to Walmart. Customers think about Amazon in terms of assortment reach, pricing and execution, not always in terms of “lowest common denominator” merchandising.

Keith Anderson
Guest
7 years 7 months ago

Walmart is emerging as a formidable global competitor to Amazon, albeit one with a different playbook.

In key international markets like Canada, Brazil, Mexico and China—where Amazon has not yet established a dominant foothold—Walmart is investing aggressively.

In more developed markets, it is a leader in integrating its online and offline supply chain and operations.

Its key competitive gap versus Amazon remains selection, but its growing infrastructure indicates Walmart is increasingly serious about getting its fair share (or greater) of retail’s fastest-growing segment.

Robert DiPietro
Guest
7 years 7 months ago

Walmart has a way to go to compete with Amazon on e-commerce. It shouldn’t ignore its greatest asset, the retail stores, and should be sure to use them in its e-commerce strategy. It is not a winning solution to just compete with Amazon straight-up on e-commerce.

Walmart also has an advantage it could leverage with its grocery and fresh food offerings.

Gene Detroyer
Guest
7 years 7 months ago

The opening sentence is a disservice to the Walmart strategy: “With foot traffic and sales at its U.S. stores continuing to disappoint, Walmart continues to look for answers to build its business anywhere it can.”

Walmart builds the business where the business is going to be. Even if “foot traffic” did not disappoint, the future of Walmart is international and online. If the company has close to $3 billion to invest, why would they invest it in their traditional, now mature business? Would you not invest it in the future?

Walmart has more stores outside of the U.S. than in the U.S. This is because that is where the growth is. Is Walmart going to get a better ROI investing in online or building more stores in the U.S.?

On that note, I just read some stats on internet retailing in Southeast Asia and the Middle East/North Africa. It appears that as mobile phones have leapfrogged wired communication, online retailing will leapfrog brick-and-mortar in these countries.

Paula Rosenblum
Guest
7 years 7 months ago

I don’t think so. Amazon has its own problems—and they have very little to do with Walmart. Generally, it’s a different customer.

I don’t see Walmart taking share away from Amazon. Its biggest problem is retaining its existing customers. Maybe (maybe) its customers will join it on the web. At the moment, I think those customers are wandering off to dollar stores.

Bill Davis
Guest
7 years 7 months ago

As Walmart ramps up it does create more competition for Amazon, but they still have a long way to go to catch Amazon. Amazon has been focusing on e-commerce since the mid ’90s, Walmart seriously for the last five or six years. Walmart’s online sales in 2013 were approximately $10 billion, while Amazon’s were approximately $75 billion, so percentage of growth as a comparison is misleading.

If e-commerce sales continue their growth, the question for Walmart is will they start closing some of their Supercenters, as these have costs to operate? In the battle for dominance between the two, Amazon has the early lead, as they are doing to Walmart online what Walmart did to traditional retail stores.

Gajendra Ratnavel
Guest
7 years 7 months ago

Yes absolutely great news for online consumers. Walmart’s initiative online will shake things up at Amazon and I believe for eBay as well.

This is a great move for Walmart and one that will certainly pay off. Walmart will need to beef up its electronic product offering to compete with the online giants like Amazon, Apple and Staples but if there was one company that I could choose to dethrone Amazon, it would be Walmart.

Ronald Lunde
Guest
Ronald Lunde
7 years 7 months ago
Earlier today I published this Sam Walton quote on LinkedIn as part of a new “Chasing The Customer” series of daily quotes relating to the changing consumer: “There is only one boss: the customer. And he can fire everybody in the company, from the chairman on down, simply by spending his money somewhere else.” Today’s Walmart team seems to understand three things very well: Logistics Building big stores Low prices That served them well in the past, but just as Sam Walton passed Sears, new entities have adjusted to the changing consumer and technology and are passing Walmart. Whether or not Walmart has developed the skills to understand their customers is the critical question in today’s customer-driven environment. Marketing today is about more than just price. You have to consider product segmentation, product augmentation and customer segmentation strategy as well as price. Customers today are also demanding something a little more—an experience. Walmart has some work to do in both the physical store and e-commerce areas to provide a memorable customer experience. Note that Kroger… Read more »
Lee Kent
Guest
7 years 7 months ago

Two entirely different questions. I just don’t see Walmart as a competitor of Amazon’s as they have very different customer bases.

On the other hand could Walmart’s investment in e-commerce offset some of their struggles in the Supercenter business? Could very well happen as long as the strategy takes a hard look at how they are using their stores and square footage today. That’s my two cents!

Tom Redd
Guest
7 years 7 months ago

Amazon has major problems to deal with—Alibaba and Walmart and Bezos. All of these are competition for Amazon’s image and the image is priority one. Then pricing, then service. Bezos is a problem because of his jaunts with marketing ideas like drone delivery, etc. Makes the shop brand seem wacko.

The trick behind the winner is the assortment and the focus. Focused on delivering what their target markets want and having just broad enough assortments to make shopper decisions easier. Last we have the shipping cost issues. Walmart has an edge with ship-to-store.

Should be an interesting battle. I shop both sites and like many of Amazon’s features. The Prime assortment is shrinking. Walmart’s ship-to-store has not failed me.

Huge growth opportunity for Walmart—go gang!

Kenneth Leung
Guest
7 years 7 months ago

Walmart’s strength historically has been its technology leadership in supply chain visibility to lower the cost and improve efficiency to stores combined with ability to deliver the goods to the shelves and check people out. Their decrease in store personnel and inability to keep the shelves full (which is one thing tech can’t help unless they redesign how to stock shelves without employees) has been hurting them and driving customers to go online and therefore open to Amazon.com.

Walmart now needs to innovate in e-commerce to compete with Amazon for those who prefer E-commerce, and balance their store personnel investments to improve the checkout experience and keep the shelves full. The core Walmart shopper demographic is still store based, I just don’t see E-commerce making up that difference because it is a different set of customers online.

Jenn Markey
Guest
7 years 7 months ago

With year-over-year online growth of 30%, Walmart is more serious than ever about e-commerce. As cited by the recent Wells Fargo report, we have seen Walmart getting increasingly aggressive in their online pricing especially related to Amazon. However, the cost of shipping still frequently puts Walmart at a competitive price disadvantage. So these fulfillment center investments represent the next logical step in the battle for digital shoppers especially with “click and collect” models that leverage Walmart’s sizeable store footprint and they also represent a more significant threat to the likes of Amazon and other online players.

Ultimately, online growth will help address weakness in Walmart’s other channels and will largely be led by specific categories best suited for online sale. Walmart is already making the shift to smaller store footprints. As well, their Savings Catcher program is a brilliant way to help migrate their in-store shoppers to their online stores. Only time will tell the final outcome, but it’s clear that Walmart intends to give Amazon a run for its online share.

Craig Sundstrom
Guest
7 years 7 months ago

What can Walmart bring to the table? Money; that helps (it always helps). Buying clout, which can presumably translate to lower prices. Name recognition. All of these MIGHT create a formidable competitor, but there’s certainly no guarantee. I think the biggest problem is that WM has made its money selling low value/high volume goods, and I’m dubious how well that translates to e-commerce…I just don’t see a future in selling laundry detergent online.

Vahe Katros
Guest
Vahe Katros
7 years 7 months ago

Here is a potential weakness Walmart might exploit: the Amazon affiliate program. To wit, an example from my Amazon order history: “Hefty One Zip Freezer Bag Gallon Size, 25 Count, Sold by: Ubiquitous Deals.”

Now, to be sure, Ubiquitous Deals sold me a nice box, slightly crushed, it was okay but not what I would expect from Walmart. Could the lack of quality control in the affiliate channels be Amazon’s weakness?

What if Walmart sells the idea of guaranteed chain of custody on all products and executes on subscription services—is this act of self cannibalization foolish or is it the innovator’s dilemma?

I think it’s time for Turner and Dalzell to go home to Bentonville and fix Mr. Sam’s legacy.

Ed Stevens
Guest
Ed Stevens
7 years 7 months ago

Without a doubt, Walmart’s investment will create more serious competition for Amazon. Walmart is a formidable company, and it has yet to show any significant signs of decay.

No retailer or retail format is guaranteed to last forever, but Walmart’s vision to serve the working class has made it a sort of iconic brand, not unlike Chevrolet or McDonald’s.

Amazon will have a hard time penetrating the low end of the market if Walmart defends it with any significant resource or effort—at least as long as Bezos is at the helm. He’s a bit high on the cultural elite spectrum.

Lee Peterson
Guest
7 years 7 months ago

We have a saying now, “the closer you are to a physical Amazon (i.e. a warehouse), the closer you are to getting destroyed by them.” This retailer is right in the center of the bullseye.

Sam Walton himself is known to have said, “it’s easy to compete with us, just do what we don’t do.” Good advice.

Ed Rosenbaum
Guest
7 years 7 months ago

I remain pessimistic that any company will be a serious competitor to Amazon. The costs are just too high, and the time to recoup the investment is probably not easily measured. But, if any company can do it, it is Walmart.

Bill Davis
Guest
7 years 7 months ago

Interesting article in yesterday’s New York Times on Walmart, that is relevant to this discussion.

Arie Shpanya
Guest
7 years 7 months ago

I think that Walmart’s initiatives will definitely create more competition for Amazon. Both retailers are known for being loss leaders in most product categories. The competition is always fierce to provide better value, more comprehensive inventory, and build more loyalty, because it’s not just about price.

Although Walmart might be experiencing setbacks related to its physical stores, they are a great asset, if used strategically. Amazon has upped its convenience with Amazon Fresh, but it’s only available in a handful of cities. Walmart, on the other hand, is within driving distance of most places in the US and they’re popping up all over the world.

Although Walmart’s 30% YOY growth compared to Amazon’s 27% is an exciting stat, in order to become a true rival, Walmart will need to work harder to be the first retailer consumers think of when they need or want something.

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