About 15 years ago, Walmart committed itself to Internet retailing. This year, it made the same commitment. But the environments surrounding these similar announcements differ radically from each other. In particular, a couple of decades ago, Amazon was just a small annoyance, totally dominated by Walmart’s superior reach, sales, distribution capabilities, and revenue. Today however, Amazon has overtaken Walmart in terms of its stock market value, and it appears well-positioned to compete in the digital marketplace, whereas Walmart continues to seek a firm toehold in the online realm.
Walmart certainly is not alone in struggling to compete with Amazon, but it is the largest and most prominent example of how Amazon has transformed the retail landscape. In addition to its long-standing advantages—low overhead, achieved because it does not need to invest in physical stores; vast inventory, unlimited by any reliance on square footage in stores; and an enviable recommendation algorithm—Amazon continues to invest heavily in its fulfillment capabilities. By achieving the ability to offer same- and next-day delivery regularly, Amazon has become a primary source that consumers rely on to meet their immediate consumption needs.
In contrast, Walmart’s dominance has been predicated on its reputation for low prices and its excellent distribution network to stores. That is, Walmart’s famed logistics capabilities have allowed it to get products from distribution centers onto store shelves more efficiently than virtually any other retailer. However, it lacks the skills and logistics ability to move those products from store to customers’ homes.
Furthermore, its low price reputation is being challenged by Amazon too. Unscientific experiments show that the two retailers vary in which one offers the lowest price on any particular product. Amazon also changes its prices constantly, which makes a direct price comparison difficult. However, the overall notion that Walmart has long tried to develop—namely, that it would always be the place where consumers could find the lowest prices—no longer holds for many shoppers. They might be able to find the lowest price at Walmart, but the substantial price transparency of the Internet means that they can always click around to see if they might find a better deal elsewhere—like Amazon.
Thus, Walmart’s dedication to online retail might be too little, too late. It spent years focused on ensuring its dominance in physical logistics channels, but in some ways, those investments have already grown outdated. By the same token, Walmart recognizes that it cannot simply ignore the online channel. It claims that shoppers actually want a hybrid offering, such that they can order online and pick up items in stores if need be. In that case, Walmart can leverage its existing advantages into the future as well. Finally, it knows that Amazon is not going anywhere. If Walmart plans to continue to compete effectively with it, it needs to keep on committing to its online strategy.
- Why is Amazon beating Walmart.com?
- Do you believe that Walmart can catch up with Amazon? Why or why not?
Source: James B. Stewart, The New York Times, October 22, 2015