Amazon AMZN is set to report first quarter earnings this week and Walmart WMT will report much later. But both companies are making a lot of progress on their core operating strategies that make their rivalry an interesting thing to study at any time in the quarter.
Amazon is without doubt the king of ecommerce
So not only does it have a ton of data on its users, but it also has the stuff stored in the correct format so that its machines are able to convert the data into artificial intelligence to generate repeat sales, or package it for sale to advertising partners, or help automate parts of its operations with robots.
Best of all, because of the search capabilities it has developed over time, Amazon has information on not just what people are buying but also what they are looking for, at what time of the day or year and even occasionally the purpose for which they are buying. This again feeds Alexa, its super useful personal assistant that has also been known to spy on people. Ahem.
It’s apparent that what Amazon lacks is a physical presence (other than its many fulfilment centers). So it’s tying up with traditional retailers it has been demolishing like Sears SHLDQ and Kohl’s KSS that just can’t get much traffic in their stores. So whether it’s just changing a tire (as in Sears’ case) or servicing returns (as in Kohl’s’ case), these retailers are happy to help. After all, who knows, getting people in their doors might just lead them to pick up a few items.
Amazon is also investing heavily in building its own stores, including the cashier-less varieties, stores selling products that have been popular in certain locations, such as 4-star stores and soon, a grocery-focused chain that’s likely to be cheaper than Walmart. The ability to offer pickup instead of home delivery takes care of logistics headaches, particularly in the last mile.
Amazon was quick to identify that Walmart was likely to grow into its most formidable competition, not only because it was the leading grocer (a category where Amazon still has limited experience, but also because it was a company with considerable resources, quite a bit of it was already going into technology.
Walmart investing heavily in technology and product range
Changing demographics in favor of millennials that are always looking for both deals and quality, are leading to continued growth in online shopping. The shift is driven by greater transparency and easier comparability of prices in the online world. This was the main reason for its purchase of Jet.com, which promised “lower prices than Amazon.
But competitive pricing naturally increases margin pressure. Because Walmart’s main business is in grocery, which typically carries very low margins, the need to sell those items at the lowest possible margin, is an additional challenge. Walmart is dealing with the problem by befriending brands in things like apparel, including fashion (where margins are higher) as well as other items. To be fair, Amazon hasn’t solved this problem either, which is why the cost of buying from Whole Foods hasn’t changed much despite the product range hacking and the marketing around price cuts.
Traffic generation is a problem that both physical and online retailers have, so there is a need to generate repeat customers. Grocery items are generally replenished periodically, but it helps to really simplify the checkout method like Amazon’s Dash buttons.
Walmart has the advantage of being physically close to its customers by virtue of its network of stores, so it can have things ready to pick up in as little as 30 minutes of the time they are ordered online. And according to research firm Brick Meets Click, shoppers spend $200 a month on supermarket delivery and pickup services compared to just $74 on Amazon groceries. The firm also estimates that online grocery sales will grow 15% this year compared to 25-30% growth for grocers offering both delivery and store pickup.
The company is also taking steps to stay at the forefront of technology. Its recent deal with Alphabet GOOGL allows it to work with Google Assistant in home devices equipped with the voice assistant. While not many people are using the things to do their shopping yet, it’s only a matter of time before they do. So given Amazon’s large installed base and Google’s position as a fast-growing second, the agreement is probably the best it could do to get into people’s homes.
Also, while Walmart isn’t as far along in advertising as Amazon, the company is taking necessary steps to build that business as well. It recently merged the online and offline units to make ad buying easier on the platform. It also bought a digital advertising startup called Polymorph Labs to get the necessary technology pieces together.
For perspective, it’s worth noting that eMarketer expects Walmart to account for 4.6% of ecommerce sales this year, up from around 4% in 2018. The company expects to come off its 40% growth in 2018 with 35% growth in 2019. This doesn’t compare with Amazon’s strong double digit growth rate especially off its 50% share. At the same time, Amazon’s share of physical retail sales is next to nil and that’s where Walmart generates most of its business.
Both companies have a ton of data on their users. But while Amazon has transformed that into tech-enabled market intelligence, Walmart is a little behind in that race (although it’s already testing its own AI, visual search techniques, AR capabilities and the like). Additionally, Walmart has a much more comprehensive physical presence, so it is far better able to cater to popular formats with greater near-term relevance like order online and pick up at store.
So the race is far from over and both companies look about evenly poised to capture a growing share of the market mostly at the cost of smaller players, or those with limited resources to really take technology support to all it can be, i.e. artificial intelligence, robotics, AR, et al.
Amazon currently carries a Zacks Rank #2 (Buy) while Walmart carries a Zacks Rank #4 (Sell).You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Will you retire a millionaire?
One out of every six people retires a multimillionaire. Get smart tips you can do today to become one of them in a new Special Report, “7 Things You Can Do Now to Retire a Multimillionaire.”
Click to get it free >>
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Amazon.com, Inc. (AMZN) : Free Stock Analysis Report
Alphabet Inc. (GOOGL) : Free Stock Analysis Report
Walmart Inc. (WMT) : Free Stock Analysis Report
Kohl's Corporation (KSS) : Free Stock Analysis Report
Sears Holdings Corporation (SHLDQ) : Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment Research