After writing about the 12 months post Jet.com acquisition by Walmart I have been thinking about how Walmart can win against Amazon. While researching to write the post, I kept coming back to “You cant out Amazon, Amazon” which is both telling and indicative of how I perceive how Walmart is trying to win the US ecommerce market.
Amazon has their pillars – speed and convenience
Amazon has over the last 20 years consistently been willing to cannibalize their own business to stay relevant. They have also invested into logistics like FedEx or DHL would have and invested into technology like Shopify and others have. By creating these levers they are able to commoditize them and sell the costs to third parties. Fulfillment by Amazon and Amazon Web Services have become like highways to customers with competitors building their own infrastructure.
Consumer wise, Amazon has focused on Speed and Convenience as being the drivers for consumer on boarding. Amazon Prime leverages both speed and convenience to ensure that customer spend heavily and create recurring revenue for Amazon. Customers have become accustomed to the convenience created by shopping on Amazon and searching with the Prime filter on. That may seem one dimensional but in effect that is another touch point that Amazon has created a revenue generator by charging sellers to have their items delivered by Amazon.
Amazon has created speed that they are able to commercialize akin to an Uber trip (Amazon Prime Now) in which time and distance traveled are used to calculate the cost for the utilization of the Amazon infrastructure. Instant pickup weaponizes the speed to aim at brands and competitors.
Walmart needs to innovate
In the last 6 months it feels to me that Walmart is selectively trying to rebuild certain parts of Amazon’s infrastructure. To conquer Amazon’s significant lead on Walmart in ecommerce – this is the mistake that startups make and then burn capital trying to compete on Amazon’s terms. This is not a case of however did it first – has first right at it and others cant do it but for Walmart to succeed they need to follow some of Amazon’s principles.
Examples of similar programmes being built by Walmart:
Drones – When Jeff Bezos used 60 minutes to tell the world that Amazon would one day use drones to deliver customer purchases he was seen as a mad man. Yet 18 months later Walmart has filed a patent regarding drone warehouses.
Replenishment buttons – The branded buttons that Amazon has placed in customer homes in which they can re-order customer staples was also laughed at. The beauty in these gadgets is that they provide an area that Amazon can sell to brands and then leverage the data that is generated by them. Walmart has filed a patent for Internet of Things replenishment buttons.
Free 2 Day shipping: Amazon has sold 2 day free shipping bundled with other services as Prime which has created some of the most important customers for Amazon. Walmart has since changed their 2 day delivery as being “free without a membership needed”
Deliveries by non-logistics staff – Amazon is using their own staff or on-demand staff to deliver goods to customers. Flex is quietly operating on city level. Walmart is now testing their staff as delivery agents and are also testing delivery with Uber and other startups.
Jeff Bezos has created a culture from the top down in which they are willing to be misunderstood for a long period of time. Whether it is drones, voice assistant devices and taking more control over last mile logistics – Amazon seems to push the needle further any retailer or technology company.
The opportunity for Walmart
I believe strongly that Walmart has earmarked acquiring direct to customer ecommerce businesses as their opportunity to grow in markets where Amazon is week. It provides Walmart with the ability to acquihire staff that is knowledgeable about millennials and how Walmart can future proof itself.
Walmart also needs to find further methods to re-use existing assets. As Walmart is the only retailer not part of the global trend of the Retail Armageddon their quest to use their stores better is crucial for their future. I believe that Walmart needs to make a few acquisitions to better the curbside and in store technology experience but they cannot simply use retail locations as logistics centers. Then they will not make gains on Amazon who will significantly change when their Whole Foods Market acquisitions clears.
The Race to the Bottom
Everyone talks about the fact that Amazon is battling many companies, categories and entering new regions. Walmart is also increasingly seeing their biggest competition in decades. Aldi and Lidl who are European discount based retailers will in quarters to come put pressure on Walmart’s retail business. That plus the battle of Amazon is going to place significant pressure on the Walmart stock price and thus the battle will be a hard fought one.
I believe that lower pricing is not a defensible business tactic as it accelerates pressures on other parts of the value chain (suppliers and brands) who are increasingly also being squeezed on margin and distribution. Having the lowest prices is great for customers but terrible for long term sustainable operations. Any company that battles Amazon also battles a business that has reassured Wall Street that they can invest into growth unlike any business in history.
I do not see either party willing to give an inch thus customers are going to benefit.