Amazon vs WalMart online – WalMart.com, WalMart Labs a threat to Amazon.com?

Let’s start with some figures culled from this Market Watch article on WalMart’s Annual Meeting and from Wikipedia’s Amazon.com page -

  1. 2012 Sales for Amazon vs WalMart.com online – $61 billion for Amazon, $9 billion for WalMart.
  2. 2013 Expected Sales for Amazon vs WalMart.com online – $75 billion for Amazon, $10 billion for WalMart.
  3. WalMart 2013 expected sales – $487 billion. This is both online and from WalMart stores.

This, however, is just the tip of the iceberg.

There are two contests going on here -

  1. While Amazon’s expected 2013 revenues of $75 billion are just 15.4% of WalMart’s expected 2013 revenues of $487 billion, Amazon is hoping to capture a larger and larger share of retail sales. Its move with AmazonFresh into groceries is one of several signs of its eventual plans.
  2. While WalMart’s expected 2013 online revenues of $10 billion are just 13.33% of Amazon’s expected 2013 revenues of $75 billion, WalMart is hoping to significantly strengthen its online offerings to take on Amazon on its home turf.

Amazon is hoping to strike at the heart of WalMart and WalMart’s WalMart Labs is hoping to strike Amazon.com.

WalMart vs Amazon in the US

WalMart has 3,898 WalMart stores in the US and 612 Sam’s Club stores. This gives WalMart a huge advantage over Amazon when it comes to physical stores and locations. Everything that Amazon is building up to make same day delivery a reality – Well, WalMart has large parts of that already set up and working.

Amazon doesn’t have any stores but it’s setting up a lot of warehouses and the expansion of AmazonFresh Grocery Delivery service to LA (supposedly within weeks) is a sign that Amazon intends to go up against WalMart more and more.

Amazon supposedly has a customer base of 30 million people. It’d be safe to assume that over 20 million of those are in the US.

WalMart supposedly has 200 million customers – not sure what portion of those are in the US.

Amazon dominates online retail in the US. WalMart dominates retail in the US. A lot will depend on how quickly, and to what extent, online retail eats up market share from traditional retail.

WalMart vs Amazon Worldwide

WalMart has 5,733 international stores in an impressively large number of countries -

  1. Argentina
  2. Botswana
  3. Brazil
  4. Canada
  5. Chile
  6. China
  7. Costa Rica
  8. El Salvador
  9. Germany
  10. Ghana
  11. Guatemala
  12. Honduras
  13. India
  14. Japan
  15. Lesotho
  16. Malawi
  17. Mauritius
  18. Mexico
  19. Mozambique
  20. Namibia
  21. Nicaragua
  22. Nigeria
  23. South Africa
  24. Swaziland
  25. Tanzania
  26. Uganda
  27. United Kingdom
  28. Zambia

Amazon has subsidiaries in the following countries (courtesy Wikipedia’s Amazon.com page) -

  1. Asia – China, Japan, India
  2. Europe – UK, Germany, France, Spain, Italy.
  3. North America – Canada.
  4. South America – Brazil.

Internationally, there’s little doubt that WalMart has a sizeable advantage. It reaches more countries. In quite a few of the countries it has lots of stores and a large customer base. It has a very good understanding of lots of international markets.

Amazon’s advantage is that it sells worldwide via its subsidiaries and via Amazon.com. For example, it sells its Kindle eReader and its Kindle Fire HD Tablet in 170 countries. It also allows sales of other goods to lots of countries from its websites.

WalMart’s advantage is in being present and having stores in many more countries. Amazon’s advantage is in selling products online to nearly every country in the world and having some strong subsidiaries in some important markets like the UK.

For reference: Amazon has 90,000 or so employees worldwide. WalMart has 2.2 million worldwide employees.

Next, let’s look at what resources and financial assets Amazon and WalMart have to fight an Amazon vs WalMart war.

Amazon vs WalMart – Some Financial Figures & Assets

  1. Net Assets – Amazon has $32.55 billion in Assets. WalMart has $203.1 billion in Assets.
  2. Operating Income and Net Income – Amazon had operating income of $676 million and net losses of $39 million in 2012. WalMart had $27.801 billion operating income and $16.999 billion net income in 2012.
  3. Revenue – Amazon had $61 billion in revenue in 2012. WalMart had $469.162 billion in revenue in 2012.

We see an interesting contradiction here -

  1. Amazon with $32.55 billion in assets, $676 million in operating income, and $61 billion in revenue has a market capitalization of $126 billion.
  2. WalMart with $203.1 billion in assets, $27.801 billion in operating income, and $469.162 billion in revenue has a market capitalization of $251.11 billion.

Perhaps Wall Street traders expect Amazon to leverage its technological and/or logistical skills and abilities to take out a large chunk of WalMart’s business. Perhaps they just expect it to take a large share of total retail.

Regardless, WalMart is in a very strong position financially and it’s hard to see it making it easy for Amazon to take over a large part of retail. It’s clear that Amazon intends on doing exactly that. Where Amazon has a weakness is that it neither has huge assets nor huge profits. So, if the Amazon vs WalMart war turns into one of attrition – How is Amazon going to keep fighting?

While Amazon makes forays and follows its gameplan for domination of all of retail, WalMart is implementing its own anti-Amazon strategy.

Could WalMart.com turn WalMart Labs into a major threat for Amazon.com?

If we consider just WalMart.com, then the figures seem tilted massively in Amazon’s favor -

  1. WalMart.com accounts for just 13.33% of the revenue of Amazon.com. $9 billion revenues in 2012 for WalMart.com are dwarfed by Amazon’s $61 billion revenues.
  2. WalMart has none of the technical savvy of Amazon. While Amazon is building Amazon Web Services and Kindles and Kindle Fire HDs, WalMart is making very few moves in the online space that people know of.
  3. Amazon has all the coolness and the blessings of Wall Street. Developers who would jump at the chance to work for Amazon might feel WalMart is not ‘technologically’ good enough.

Well, WalMart is going about acquiring technology and developers very smartly. There are two things Amazon.com has to be wary of -

  1. WalMart has an incredible amount of assets and a huge profit stream. $203 billion in profits can buy a lot of technology companies. As can $16.999 billion in net annual income (2012 profits).
  2. WalMart is already buying up technology companies left, right and center. Acquisitions in the last few years include – Vudu.com (movies, see WalMart Press Release), OneOps (Cloud Services), TastyLabs (makers of Delicious), OneRiot (Mobile Ad Firm), Kosmix (social media, interesting interview with Kosmix founders who also founded Junglee and worked at Amazon), Grabble (POS technology), SmallSociety (iOS Apps, interesting article on WalMart setting up offices in tech cities).

WalMart’s WalMart Labs is slowly and surely putting together the pieces to fight Amazon.com on its own turf. Given that WalMart generates $17 billion a year in profits and Amazon generates less than a billion a year. Given that Amazon’s total assets are just $33 billion, Amazon has to worry about what might happen if WalMart Labs hits a home run.

The even scarier possibility is that WalMart doesn’t view WalMart Labs as a means to take on Amazon.com. Perhaps WalMart views WalMart Labs as the next step in online retail – the semantic shopping web (this is based on the Kosmix interview linked to above).

Amazon.com might be building what it thinks can take down brick and mortar retail. WalMart Labs might be a reaction/response to that. Or it might not.

What if WalMart Labs isn’t anti-Amazon? What if it’s the evolution of Amazon and online shopping?

The better strategy for WalMart would be to out-evolve Amazon.com

We basically have – Amazon using online efficiencies to try and take out traditional retailers like WalMart.

The standard defence to this would be to build WalMart’s own website and take on Amazon head on. However, that would be fighting the war on Amazon’s terms. Amazon understands the current online retail model very well.

The better strategy for WalMart Labs and WalMart.com would be to figure out what’s next in online retail and web shopping. Perhaps it’s semantic/social shopping that combines data points from sites like Pinterest and Twitter with customer history and customer purchases and provides a predictive, ever-evolving stream of choices for the user.

If WalMart Labs can help WalMart.com develop this, then WalMart can hit Amazon.com where it really hurts. It could then take over online retail using the next evolution in online shopping and trap Amazon between brick and mortar retail and semantic/social shopping.

Amazon’s two weaknesses persist

Whether it’s competing against Apple and Google or competing against WalMart, Amazon’s two main weaknesses are the same -

  1. It doesn’t have any highly profitable cash cows. It’s hard to fight wars on revenue alone.
  2. It doesn’t have huge assets. $33 billion is very impressive. However, it’s dwarfed by the assets of companies like WalMart ($200 billion) and Apple ($176 billion) and Microsoft ($121 billion).

Amazon’s competitors could use the exact same strategy that Amazon has been using against its ebook rivals. Sooner or later some company will. It’ll be interesting to see how Amazon reacts when that happens.

Amazon vs WalMart isn’t going to be decided by Amazon vs WalMart.com – unless WalMart.com wins

We aren’t talking about books or music here. We aren’t going to have all of retail switch over to the Internet anytime soon.

Amazon vs WalMart might go on for another 20-30 years.

However, at the present moment, Amazon.com vs WalMart.com is very interesting. If WalMart Labs can deliver a few big hits, it could really slow down Amazon.com and greatly increase the chances that WalMart beats Amazon in the long-term.

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