How Walmart could dominate Amazon
Disclaimer: All opinions stated in this article of the author and do not reflect any other opinion but his own.
I came across a very interesting Forbes article in my LinkedIn feed a few days ago. It was about Walmart and their online division and a comparison to Amazon. For disclosure I have 19 connections at the time of writing this article that are either current or former employees at Amazon. This article is in no way a slight against them personally. In fact, individuals at Amazon I fully suspect are great people and I wish them well. It is my hope that this article can be about company vs. company and not detract to an employee vs. employee level.
Either you love Walmart or you hate it. In either case they are here to stay. Walmart is recognized as one of the largest retailers in the world with retail sales in a single day that trump retail sales of some companies in a year. However, Walmart is not without their faults. One major point is on their online sales division. However, we recent changes in management, there are some opportunities to get back in the game. Recently Walmart opted to purchase Jet.com for $3 Billion. While the merger still needs to be approved (I have no reason to suspect that it will not), I am going to discuss based on things Walmart could do regardless of this merger.
Walmart needs to stop being well... Walmart
A few years ago, there was an experiment Walmart did in the DFW Metroplex, particularly Plano, TX and Highland Village, TX. They opened Walmart Supercenters that were situated to deal with the high income shopper. Apparently at the time, Walmart was the dominant retailer in all other categories but the ultra-high income bracket. So Walmart built some locations where they were larger aisles and ‘cheap’ brands like “Great Value” were replaced with name brand goods or premium private label like Sam’s Choice. Additionally the quality of the products was elevated to where Samsung and Sony Hi Def Premium TV’s were there as opposed to like a Visio TV with a bargain price. The store also had more handmade deli items and the like similar to what you would find at a Whole Paycheck, err Whole Foods (sorry – slip there) or Central Market (HEB subsidiary for those not in Texas). Overall it failed on its initial goal of bringing in the ultra-wealthy, but did succeed in another factor. Surprisingly people will buy ultra-high end goods at Walmart if they offer them at an “Everyday Low Price”. Hence, that is why at Walmart now you see more higher-end goods than a few years ago.
The problem with the stores wasn’t what was being offered or the prices (which were quite good), but rather it was a Walmart Store. The employees were Walmart Employees that were transferred in and for all purposes looked exactly like any other Walmart Employee in any other Walmart. The issue wasn’t the products, but the fact it was a Walmart Culture. So you got to take the good parts with the bad. Within a few months, it was starting to look like any other Walmart with a pallet dropped in the middle of an aisle and a cashier that looked like their soul was crushed.
Walmart needs to understand the “Definition of Insanity”
If you have ever worked in a domestic US company you will eventually hear someone talking about the definition of insanity – Doing the same thing over and over and expect different results. That is the problem with Walmart – they do the same things and expect different results like the Flagship Stores I mentioned before. If they attempt to do what they did with Walmart.com Version 1.0 they will likely fail at Walmart.com Version 2.0. The fact that they have a very seasoned veteran of e-commerce from eBay is a start. However, to become eBay is a losing battle. eBay has been dying for a few years. While it might be the 2nd largest online marketplace in the US, its numbers are not what they used to be for a variety of reasons including its just ‘old’. They have made changes but still haven’t found their ‘secret sauce’ like Amazon has.
What Walmart could do is follow the lead of ALDI & Trader Joes. If you didn’t know these two stores have the same parent company and do their upmost to not be like each other. In this sense, they share much of the same backbone and philosophy but differ is the execution. Both are curtained around value, but one focuses on efficiency and the other on quality. Both have grown to be the largest ‘threat’ to Walmart in the US and ALDI, Tessco, and LIDL were given as the reasons for the difficulty of Walmart to penetrate the German marketplace. So my suggestion is Walmart and Walmart.com act differently but work together.
Expose Amazon’s Achilles Heel
For all the love customers give to Amazon there are 2 factors that hurt Amazon. First, I have never met an online retailer or business that was excited or happy to deal with Amazon. Most do it because of the traffic in page views. Amazon has made some changes, but still it feels like a game of “Gotcha!” when you go to sell items with them. The second issue is Amazon has a very minimal physical presence and relies heavily on distribution direct to the customer. Each of these is are major problems for Amazon that I honestly don’t see them fixing.
For the first issue of supplier relations, the issue has more to do with Amazon’s “do it our way” attitude. Additionally Amazon favors larger online sellers over smaller sellers with price breaks based on volumes. So as an emerging online seller, Amazon can be more of a barrier to entry than a marketplace to sell your goods. Part of this has been overcome with “Fulfillment by Amazon”, however even then the terms and conditions can be a bit unclear or misleading, especially in areas like storage costs and what is considered oversized verse standard. Where Walmart can capitalize on this is focus on the marketplace. While no online retailer will likely choose to forgo Amazon for Walmart, there are some incentives Walmart can do to get lower prices than Amazon. First if my calculations are right, Amazon is about 30% to 40% of the sales price in fees. So for every dollar sold, I can expect to pay $.30 to $.40 to Amazon leaving me with $.60 to split between cost of goods sold (COGS) and profit. If Walmart was to reduce the fees charges to say 10% to 20%, this would mean greater opportunities to maximize my profit. As a result while I would consider keeping my good on Amazon due to their market size, I would likely push for the sale of my goods via Walmart.com since I would make $.80 to $.90 of every dollar towards COGS and profit. So even if I reduced my price somewhat, there is an incentive for lower prices at Walmart.com since I could have a higher profit margin. Walmart.com could even work with their network of distribution centers and effectively allow “Fulfillment by Walmart” if they so choose.
The other factor Walmart can use is their physical footprints. Imagine what it would be like to order your items and be able to have them picked up if you wished at your local Walmart. For a startup seller, imagine the beauty of dropping off your items at a Walmart store and have them distributed as needed via their distribution network. For Walmart the benefit would be is that it could be a cost recovery to their backhauls from stores where they are likely not running with a fully trailer or managing ‘milk runs’ in which are semi-empty trailers after the first stop.
Both need to be wary of the Chinese Tiger
While I advocate that Walmart could overtake Amazon as the dominate force in the e-commerce marketplace, they need to be wary of the “Chinese Tiger”. Who is the Chinese Tiger? None other than Alibaba.
Alibaba really hasn’t made their move into the US Marketplace. Most version of their websites are the Chinese version in English with Chinese merchants. An example of this is AliExpress which allows for smaller orders to be placed and generally at free shipping or nearly free shipping. From my best estimate, Alibaba is biding their time before tackling the US market. Financially they appear to be shoring up the markets in major trade partners with China such as Malaysia, Indonesia, South Korea, Japan, and Russia. Alibaba also stated that their more short term and moderate goals are to establish local networks in smaller Eurasian countries. When Alibaba does make a move, I anticipate the wholesale destruction of the e-commerce market as we all know it. Reason being is a multiples of market size, pricing, and magnitude. Where Alibaba needs to focus is to move away from their “reputation” of counterfeit goods – which I plan on discussing in a different article at some point.
While I think Walmart has a significant chance to overtake Amazon as the dominate e-commerce site and platform if they can alter their corporate culture. Alternatively, Amazon does have the ability to grow into a B&M related marketplace in some markets or partner with a company to assist otherwise. Both need to fear the emergence of Alibaba which could impact both Walmart and Amazon’s online presence significantly. In the end I would not declare an overall winner yet, but it will definitely be an interesting couple of years with the consumer being the ultimate winner.
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