From The Verge:
Walmart’s ongoing battle with Amazon for the retail crown is expanding well beyond retail, and it’s forcing one of the largest companies in the world to reexamine its DNA. In the last six months alone, Walmart has partnered with scores of tech firms to better compete with Amazon and make progress in markets that may become pivotal years down the line. It’s also begun rethinking how it views itself: a traditional big-box retail giant that now hopes it can be nimble enough to compete with one of technology’s most powerful players.
Following its purchase of Jet.com to advance its e-commerce efforts in 2016, Walmart has starting accelerating its shift from retail giant to tech-focused partner. Those deals now include a partnership with Alphabet’s Waymo for rides to and from stores; Japan’s Rakuten for Kobo e-readers; and Uber, Lyft, and Postmates for grocery delivery.
In July, Walmart announced that it’s switched its entire cloud operation to Microsoft Azure and Office 365, in addition to working with the company on artificial intelligence projects in a new five-year deal. (Microsoft is Amazon’s primary competitor in the cloud computing industry.) That Microsoft partnership might include helping open a cashier-less, brick-and-mortar retail store to compete with Amazon Go, which the Windows maker is said to be working on as of June of this year, and it’s something Walmart reportedly started working on as earlier as last year.
In addition to all that, Walmart reportedly has plans to transform its Vudu subsidiary into a legitimate Amazon Prime Video competitor by the end of the year.
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The big picture this paints is of a legacy retail brand — one of the biggest on the planet — that’s now fiercely hungry to compete and stay relevant in a world moving slowly but surely toward online commerce, on-demand delivery, and bundled services.
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Last year, CEO Jeff Bezos placed a target squarely on Walmart and every other big-box retailer in the market when he helped orchestrate the acquisition of Whole Foods. The chain is now tied directly to Prime, helping Amazon further branch out into everyday purchases as well as last-mile delivery of groceries and household goods. It’s clear why Amazon wants to compete with Walmart: Bezos’ plan includes providing everything to everyone, at all hours of the day, and anywhere it can reasonably reach with trucks and, soon, drones.
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The financial numbers provide a more telling story. Walmart earns more revenue than any other corporation in the US; in fiscal 2018, it reported a staggering $500 billion in annual sales. But its margins are razor thin because its operational costs are astronomical. Walmart employs more than 2 million people worldwide and more than 1.4 million in the US alone. Yet, despite quarterly profit and sales that are typically more than double the size of Amazon’s, investors see Walmart as worth about a quarter of Amazon’s nearly $1 trillion market valuation.
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Walmart’s growth is minuscule. Its profits are also declining as it continues to spend money to beef up its online operation and compete with Amazon.
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“When I think of Walmart, it’s not so much to me that they want to keep up with Amazon,” says Robert Hetu, the research vice president for retail at analyst firm Gartner. “I think clearly if you look at it historically, you can say Walmart missed an opportunity that Amazon captured, but I don’t think Amazon took business from Walmart.”
. . . .
Ultimately, the winner of the grocery battle, and the greater retail war, will come down to which company understands human behavior better, according to Hetu.
Link to the rest at The Verge
PG says Sam Walton, the founder of Walmart, was a serious retailing genius in many ways.
One of his trademark behaviors was to use the company plane primarily to visit Walmart stores (which were often in locations far from any scheduled airline service). A visit from “Mr. Sam” was a great occasion because he did an excellent job of motivating store managers and employees to focus on pleasing customers. While this might have been routine for expensive jewelry stores, it was definitely not typical of big box stores that offered low prices.
Back in the day, the local Walmart was cleaner, brighter and cheaper than other local stores. Its employees were paid better than those of other local retailers and notably more helpful. The best employees knew they could rise in the organization if they did good work. In a small city, the store manager of a local Walmart could easily be the best-paid retail manager in the area. Most managers had started as low-level stockers or cashiers.
Sam Walton died in 1992. PG met a couple of the Walton children over the years and concluded that Mr. Sam’s talents had not been inherited.
The successors to Walton in Walmart upper management have not, in PG’s highly discountable opinion, inherited the talents and attitudes that enabled Walmart to successfully grow and expand.
One point that doesn’t get mentioned often is that as B&M stores close, they leave behind a bigger opportunity for both the remaining B&M players as well as the online competitors.
Fishing in troubled waters.
A perfect example of this was the closure of Borders where the bulk of their net share went to Amazon and non-chain bookstores. B&N was under pressure before and remained under pressure because none of the measures they took were effective and to a great extent were counterproductive. (I.e., the APub boycott, the pivot to toys and trinkets, the restaurants…)
Walmart needs to fortify their B&M processes and online integration regardless of whether it helps them improve against Amazon because it’s not just a two horse race.
To paraphrase the old joke: They don’t have to be better than Amazon, just better than the other competitors. They may not take sales from Amazon but they can take them from Target, Penny’s, Kohl’s, et al.
There can be growth in being number two.
My day job gives me some insight into Walmart’s attempts to adapt. They are doing some really good stuff with speeding up and improving their already solid supply chain and processes for getting product into Brick & Mortar or getting product to your doorstep in a fashion that is competitive with or better than Amazon.
The warehouse automation product they are investing in is hands down better than what Amazon is developing.
Walmart, from my perspective is failing with their customer service and experience.
No one likes going into a Walmart and their website is terrible. The website is at least a step better than the geocities clone they had a few years ago, but it’s not Amazon.com.
Walmart used to be able to entice people to their stores with prices and one stop shopping. That won’t work going forward, customer experience and friction in purchasing products is a huge factor on where people buy.
Also, as a side note, Walmart is still a much bigger retailer than Amazon. We have a slightly skewed perspective here because Amazon’s massive disruption of publishing. Walmart isn’t number 2. Walmart dominates retail. Walmart also brings in about 250 billion in grocery revenue a year.
Amazon might have a bigger Market Cap, but in pure revenue, Walmart is a beast. One that Amazon dreams to be.
There is no doubt that Walmart and Amazon will and need to go toe to toe against each other. For Amazon to grow, they need to attack and grab some Walmart Revenue. For Walmart to continue to succeed they need to counter Amazon and innovate faster in some areas than Amazon does. The interesting thing is, behind the scenes I think they are.
Walmart can’t afford to allow Amazon to take a large market share from them. It has a massive integrated infrastructure that could become too expensive to support if it slipped to #2 under Amazon. Letting Amazon grow and just picking off the small fry is a recipe for disaster for Walmart.
The next few years should be interesting, but I don’t know if Walmart will ever have a good grasp on what a “good customer experience is”. My experience with them is that they are awesome at innovating the back half of the company, the supply chain, the warehouse etc. Once they make contact with a customer however things get awkward. Price alone won’t over come that awkwardness.
Thanks for taking the time to provide the detailed background, RO.
It was not that long ago that Walmart’s store experience was not that much different than Target’s, albeit with a somewhat different product mix. In my observation, Walmart has definitely gone downhill since then.
The WM store experience is much more varied than would be expected in a well-managed retail operation. Some are reasonably clean and bright. Others are dingy, crowded and feel down-market. In my non-expert observation, the customer mix is also different in the down-market stores than in the better-maintained ones.
My understanding is that in days of old, Mr. Sam did not hesitate to make his emphatic displeasure known to any store manager who didn’t keep the store clean and the stock well-organized.
The biggest issues competitors are now facing with Amazon aren’t market share or size per se, but mind share and customer loyalty. When over half of all online shopping searches start at Amazon it is going to be hard getting attention for your website.
And yes, the Walmart website needs serious reworking.
Last time I tried it I found four separate listings for the same product, from the same vendor, all reporting it in stock. (The only listings.) When trying to buy it, the cart reported it as out of stock. Going back to the product page showed it in stock.
Amazon had it at a slightly higher price under Prime, one listing per vendor, and several actually had it for sale.
Just basic stuff, right?
One online vendor that has a good working website is Home Depot.
They do in-store pickup well and their online store inventory links look to be accurate.
How well they implement their online strategy in the coming years remains to be seen, but I think they are smart to be moving aggressively in that direction. They can’t afford to sit on their laurels and hope that yesterday’s retail strategies will work in tomorrow’s world.
PG, You came so close to buying me a new computer. Had the tea cup to my lips when I read the line above. Laughed so hard I spilled tea in my lap but did not spray liquid across the keyboard and screen.
“The successors to Walton in Walmart upper management have not, in PG’s highly discountable opinion, inherited the talents and attitudes that enabled Walmart to successfully grow and expand.”
The same may happen to Amazon when Jeff moves on. Though until that day ‘it’s still day one’.
On a side note, I’m happy to see Google is still extending their fiber in town. They’d run a loop down both sides of our street a month or to ago (cutting into the street, laying the cable, and filling it in the same day), flyers were on the doors Thursday and they had a couple guys extending the fiber to the house this morning.
Should be interesting to see what Spectrum and AT&T prices do in the coming year …
We’ve had Google Fiber for a couple of years and it’s terrific.
Did your other options lower their prices once Google was an option?
Hey, Manhattan Mafia: this is what competition means.
Not colluding to raise prices on consumers.
Up your game and meet the challenge head on.
(Now, a moment of silence for the retailers about to be caught in the middle.)