One week left until Super Bowl LII and loyal fans are getting ready for a nail-biter. However, behind the scenes there are two more teams pining to get the attention of the fans. 2 of the US retail industry leaders are fighting it out to see who will reign supreme in the hearts, minds, and wallets of consumers. Who’s playing in this game? Amazon and Walmart.
Now, you may wonder if this is even a hill worth climbing for Walmart. If you want a comprehensive background of the company, check out a fellow classmate’s post that gives a great foundation. However, here we’ll check out how these two companies line up in the e-commerce battle. On one side we have Amazon, the renowned champion of e-tail in America. In opposition we have Walmart, who has been quietly maneuvering to dethrone the current retail champion.
Let’s Talk Numbers
Retail profit margins are notoriously thin, the e-tail space is especially tricky, where currently only two e-tailers (Amazon and Overstock) have become and remained profitable. The primary source of profitability for Amazon has been through Amazon Web Services, but with the rise of things like Google Cloud and Walmart’s OneOps, the market is becoming even more competitive. From a sales perspective, Walmart’s figures are over three times that of Amazon’s, with over $482 billion in 2016 versus Amazon’s $136 billion. And while Amazon’s sales have consistently been on the rise, it still has a long way to go to step on Walmart’s heels. However, many see more promise in Amazon as it’s growth rate has been an average of 28% since 2008. Comparatively, Walmart has had an average sales growth rate of 3%.
Looking beyond these, Amazon typically tailors itself to a higher income demographic, while a larger proportion of Americans shop at Walmart. According to Craig Johnson, president of the retail consulting group Customer Growth Partners, Walmart customers have a median household income of $48K, Walmart.com customers have a median of $56K, and Amazon shoppers hit the median at $85K. Since Walmart reaches a broader base and draws more low-income customers, the popular inelastic goods keep customers coming at all times. Comparatively, any type of economic recession would hit Amazon harder because of the amount of luxury goods it sells. As for stock prices, Amazon has seen great growth since AWS became profitable, however Walmart could benefit from a tilt of consumer perception if their stock prices level out.
Market Intelligence leader, SimilarWeb, shared some insights on the digital factors impacting the competition – and I personally found the stats fairly interesting. Both e-commerce leaders have seen an increase in the percentage of visitors that end up purchasing, which is called the conversion rate. While Walmart’s current desktop shopper conversion rate is 4.7% (up 45% over preceding years), Amazon’s rate is 8.6% (only up 16%). This frames Walmart as the major underdog, but they’re focusing on key areas to cut into Amazon’s market.
Walmart is focusing all-in on search . For example, they put a significant emphasis on keyword traffic during the past holiday season. In accordance, they increased their share of traffic for “Nintendo Switch” by 6% in comparison to the top five 2017 holiday retailers. Meanwhile, Amazon’s traffic for the same term decreased by 2%. However, Amazon holds the lead in online traffic from referrals, which is 22% of their web traffic. In comparison, Walmart only has 11% of their traffic from referrals like daily deal sites, media outlets, etc.. If Walmart can focus in on leveraging these two sources, they could cut into Amazon traffic within the near future.
What are some of the external factors? Well, it seems like we can’t talk tech without Google. Google is well aware that its search and ad business becomes less valuable as people browse on Amazon directly, and thus Google has partnered directly with Walmart. This will keep other e-tail strong by prioritizing them in search results. In a sense, Amazon is up against not only Walmart but also indirectly Google.
How Do They Match Up
All bets are off for which retailer will win this online/offline battle for consumers. Both have maneuvered strategically. Amazon gets free 2-day shipping, Walmart surprisingly adopts the same idea. Walmart lowers the threshold for this shipping perk to $35, and Amazon follows by lowering theirs to $25. How does Walmart deal with Amazon’s Alexa? They develop a voice-shopping platform alongside Google. Where does Walmart build the 1000th location for its pick-up grocery store? Seattle, right in the middle of Amazon-land.
So Who Should You Root For?
This is a clash of the titans unlike anything seen in years. Amazon’s dominance online is well-documented, while Walmart’s fleet of stores and huge sales numbers are a matter of record. Amazon is fighting a two-front battle focusing on international expansion, meanwhile Walmart has been making aggressive acquisitions and marketing moves while quietly innovating at WalmartLabs. Additionally, Amazon is trying its hand in several markets (entertainment, smart technology, web services) which is difficult to leverage such a large scope of projects with a notoriously passionate work environment.
Personally, I love to root for the underdog. Walmart has a historical competitive advantage in retail with a strong supply-chain. The key for their online catch-up is to find a place to close the gap, whether it be search, referral traffic, or increased partnerships. A big disadvantage? Amazon has a huge pool of data to work with, which they successfully use to target customers to come back again and again. No matter which titan comes out on top, the consumers in America are reaping the benefits of this race to improve – online shopping has never been so easy. I can’t wait to visit Walmart Labs and learn even more about their e-commerce initiatives.