The Supply Side: Amazon, Walmart continue to challenge each other

Over the past six years, Walmart has continued to challenge online retail titan Amazon for e-commerce market share. And in return, Amazon has invested heavily in groceries to try and nip away at Walmart’s dominant share there.

Dealing with competitors is nothing new for the Bentonville-based retailer. Walmart founder Sam Walton made it a point to learn from competitors.

“Over and over again, go in and check our competition,” Walton said in his autobiography “Made in America.” “Check everyone who is our competition. And don’t look for the bad. Look for the good. If you get one good idea, that’s one more than you went into the store with, and we must try to incorporate it into our company. We’re really not concerned with what they’re doing wrong; we’re concerned with what they’re doing right, and everyone is doing something right.”

Amazon is the undisputed online commerce leader with 39% of total U.S. online sales last year, according to e-Marketer. Big categories where Amazon dominates are books, music and video at 83.2% of U.S. online sales and 50.2% of computer and consumer electronics, according to e-Marketer. The company forecasts that Amazon will have 46% of U.S. e-commerce sales in toys and hobbies and office equipment and supplies in 2021. Amazon already controls a 16% share of the U.S. online apparel spending with expectations of 21.4% by year-end. Amazon’s fastest growing category is foods and beverages, at 24.7% of U.S. online sales as digital grocery continues to expand, e-Marketer said.

By comparison, since 2016, Walmart has invested more than $35 billion into growing its e-commerce business, focusing on grocery, general merchandise and expanding marketplace (third-party sellers). Walmart’s $46.2 billion of the gross value of products (online sales) was good enough for second place in 2020 to Amazon, whose gross merchandise value was reported as $309.58 billion. Amazon’s share in 2020 was 39%, a steady lead over Walmart’s 5.9%, e-Marketer reports.

Analysts expect Walmart’s online sales will grow 21% this year hitting $65 billion (globally) as that was also the retail giant’s forecast. Walmart’s share of U.S. online sales are expected to top 7.1% this year, according to data from e-Marketer. Amazon is forecast to grow its U.S. sales market share to 40.4% this year, increasing it’s lead over Walmart.

Walmart is the largest U.S. retailer in the country, with net sales of $555 billion last year, growing 6.7% over the prior year. Amazon’s full-year sales, including Whole Foods, totaled $386 billion. Comparing the two companies’ revenue is difficult as Amazon generates substantial income from its web services and Prime Membership business. Walmart also has membership revenue and income generated from services.

A new report from Edge by Ascential that looked at just retail sales forecasted Amazon to surpass Walmart as the nation’s largest retailer by 2025. The report said consumers are expected to buy $632 billion worth of products from Amazon and Whole Foods by 2025, more than the $523 billion in sales by Walmart, excluding fuel.

“The pandemic has permanently shifted consumer habits from in-store to e-commerce,” said Deren Baker, CEO of Edge by Ascential. “The main beneficiary is Amazon because Walmart is still playing catch-up even though it’s been spending to add features to its online store, including launching a Prime-style subscription service last year. Amazon, meanwhile, continues to build fulfillment centers around the country in an attempt to speed up delivery and erase the advantage Walmart enjoys with curbside pickup at its more than 5,000 locations.”

Amazon’s Prime membership has grown to 200 million, adding 50 million new subscribers amid the pandemic in 2020. More than 1.9 million small- to medium-sized sellers make up 60% of Amazon’s retail sales.

While Walmart has not provided statistics on its Walmart+ subscription service, the retail giant has said customers who shop online and in-stores spend more up to 40% more than those who shop in one or the other modes.

Jan Kniffen, a retail consultant with J. Rogers Kniffen Worldwide, said every retailer has to recognize that physical and digital sales are part of the same pie, and it’s time to get over thinking they are different.

He applauds Walmart’s efforts to marry its merchandising teams and invest more in expanding fulfillment capacity in stores and adjacent to them, close to where consumers live. Kniffen is a fan of Walmart and said management is making the right bets to continue its race against Amazon. Kniffen also sees room for both of them to grow without canceling the other.

EDITOR’S NOTE: The Supply Side section of Talk Business & Politics focuses on the companies, organizations, issues and individuals engaged in providing products and services to retailers. The Supply Side is managed by Talk Business & Politics and sponsored by Propak Logistics.