Walmart is Trying to Become More Like Amazon - and Vice Versa

Convergence can be complicated. Amazon has announced it is adding physical store locations. Walmart is adding fulfillment center warehouses to more efficiently process ecommerce orders.

Which is more important to the future of the respective enterprises? We think Walmart has more at stake than Amazon.

Amazon's sales in 2012 were $61 billion vs Walmart's $7 billion. Walmart dwarfs virtually every other bricks and mortar retailer. But when it comes to assessing growth potential, Amazon's digital commerce strategy appears to be more of a strategic threat to Walmart and its future seems more secure.

Walmart is expanding everywhere it can do so: China, Mexico, US inner cities. But everywhere it goes it has problems: government shakedowns, bribery scandals and outright opposition from urban communities. Growth is hard and bitterly fought while margins remain what they have always been in retail: precarious.

Amazon is experimenting with retail stores. It's future does not depend on success in these venues. It may open up new possibilities - and it certainly tweeks Walmart - but if the retail expansion is deemed unsuccessful, it still has room to grow its core business. One can imagine financial analysts regarding it with indifference. Walmart, however, must succeed in digital to remain connected to its increasingly tech savvy and capable customers, even at the lowest end of the demographic value chain.

Simply put, Walmart needs success in digital more than Amazon needs success in retail. JL

Lily Kuo reports in Quartz:

Walmart just took a step closer to being more like Amazon, its rival in online retail. Walmart announced the opening of two warehouses dedicated solely to shipping web orders in the US
The warehouses, one in Texas and another in Pennsylvania (just 10 miles away from one of Amazon’s warehouses), should allow the company to lower shipping costs closer to those of Amazon. The online retail giant’s success in part comes from its network of distribution centers that focus solely on online deliveries.
Walmart has been angling to compete in the e-commerce world for over a decade but has failed to catch up with Amazon. In 2012, Amazon’s sales totaled $61 billion, well above Walmart’s online sales of an estimated $7.7 billion, according to the Internet Retailer. Walmart remains the world’s largest retailer of any kind—it made $469 billion in revenue in 2012, compared to Amazon’s $61 billion—but e-commerce spending is growing twice as fast as superstore shopping.
Part of Walmart’s problem has been failing to find synergies between its extensive network of brick-and-mortar stores and its website. It uses third party warehouses to help handle shipping from distribution centers that serve its stores. The company also ships online orders from Walmart stores themselves, using its store salesforce to pick the items off of shelves. Extra labor costs add up to $5 to $7 a parcel for Walmart, compared to Amazon’s which average $3 to $4 (paywall), according to analysts.The solution isn’t e-commerce overkill. In many ways, Walmart and Amazon are trying to emulate each other. As we’ve written before, more online retailers including Amazon are giving customers the option of picking up their goods at physical stores or lockers, a practice already employed by Walmart. If Walmart can strike the right balance in pushing forward its e-commerce business, its 4,100 stores within five miles of over half of the US population should be a major boon.