Amazon and Walmart are widely regarded as game changers of the retail industry. As two of the most successful retailers in history, these two firms have transformed the retail industry by redefining customer orientation, supplier-retailer relationships, and the use of information technology. Both retailers have tremendous power over their suppliers, and leveraged it effectively to offer prices as low as possible.
For the most part, Amazon and Walmart had managed to avoid each other in the competitive marketplace by serving different consumer needs. However, as consumers and markets began increasingly demanding an omni-channel presence, both retailers have been forced to invade the other’s turf - with Amazon seeking an offline presence and Walmart seeking a substantial online operation.
In 2017, Amazon, as the largest online retailer worldwide, was one-third the size of Walmart in terms of revenues, and less than 2% of Walmart’s operating income. Yet Amazon had recorded double-digit growth in sales over the last 20 years. On 31 March 2018, Amazon’s US$700 billion market capitalisation dwarfed the US$262 billion market value of Walmart.
Known as “The Everything Store”, Amazon had expanded extensively from a company that sold books online in 1997 into one that retailed 17 product categories in 2017. In addition, it offered third-party retail seller services, retail subscription services, and Amazon web services, an on-demand cloud computing platform to individuals, companies and governments. Founder and CEO, Jeff Bezos said, “We continue to aspire to be Earth’s most customer-centric company, and we recognise this to be no small or easy challenge.”
In 2006, the company had introduced Amazon Prime, a breakthrough service that redefined the industry’s value-proposition by making faster shipping a core customer expectation. Furthermore, shoppers no longer had to place sufficiently large orders to minimise delivery costs. According to Bezos, “Prime was an all-you-can-eat, physical-digital hybrid that members loved.” Over the span of two decades, Amazon and ecommerce shared a symbiotic relationship, with growth in one fueling the other. Amazon continued to drive its share further in product categories, making considerable investments towards developing innovative solutions for pick up, delivery and return of items services, including Prime Air, Amazon Key and Amazon Go.
Wal-Mart’s growth trajectory was equally fascinating. Sam Walton had opened his first Walmart Discount store in Arkansas in 1962. Based on a low-price/high-volume business model, with a vast selection of non-perishables, it expanded into smaller towns and rural areas of the US. By 1992, when Walton passed away, Walmart was recording net sales of US$44 billion, employed 371,000 employees across 1,928 stores and clubs, was present in more than 45 states across the US, and had gone international with its first overseas store in Mexico.
Successive leadership in the company continued with Walton’s core philosophy of offering the lowest prices possible, minimising operating costs, and developing economies of scale. Walmart invested heavily in technology from the onset. For example, RetailLink, its proprietary intranet that linked it with its suppliers, enabled immediate and transparent information sharing (inventory and sales performance data) between the suppliers and the company.
Recognising technology as a critical enabler for enhancing the customer experience, Walmart had set up Walmart Labs in 2011. This comprised more than 2,500 engineers, programmers and data scientists, who carried out big data analytics to inform business decisions, develop innovative solutions for search, supply chain and last mile issues, deliver operational efficiency and empower its employees through access to secure digital solutions. Walmart’s mobile shopping platform was instrumental in creating an omni-channel experience at its physical stores.
Historically, Amazon and Walmart did not compete directly because of their differing focus. However, the changing customer preference for omni-channel retailing - an integrated platform that seamlessly comprised both digital and physical retail - was compelling the two companies to make substantive investments into developing capabilities and acquiring resources in what was hitherto the other’s domain. This was the first time the two giants faced each other as fierce competitors, for their biggest fight on hand.
This case, written by Nirmalya Kumar, Lee Kong Chian Professor of Marketing at SMU Lee Kong Chian School of Business and Dr Sheetal Mittal from The Centre for Management Practice (CMP) at SMU, analyses the complexities involved in online versus offline retail channels. The case examines the distinctive capabilities and resources required for each business model, and the challenges faced in developing an omni-channel presence.
To read the case in full, please visit the CMP website by clicking here.