For quite a while now, Wal-Mart has been described as the company that changed American retail in the 1970’s and 1980’s while Amazon over the last 20 years has simply changed the way we shop, period. I would agree with both statements.
There are many small cities and villages who saw their local retailers go under as Wal-Mart rolled into town with EDLP—Every Day Low Pricing. Amazon took a different approach and was arguably the most consumer centric large company on earth. Jeff Bezos, Amazon founder, did not make a lot of profit for many years but grew the business exponentially.
There is also a growing feeling that so many Americans are getting used to the 1-click Amazon experience and that Wal-Mart is on a downward spiral. Looking at a few variables, we find:
1) Sales—Amazon now has more sales than Wal-Mart.
2) Innovation—Amazon clearly leads here with their big advantage in robotics and Artificial Intelligence. Wal-Mart has made big strides in the past few years but are not a digitally driven company as is Amazon or even Nike.
3) Locations—the nod goes to Wal-Mart as some 90% of Americans live within 10 miles of one of their locations.
4) Supply chain—close to a draw as Wal-Mart invented cross-docking and Amazon has amazing logistics.
5) Customer Service—Amazon is the leader here. In 20 years of purchases, speaking personally, I have had only two minor issues that they resolved immediately. Wal-Mart is working on delivery in many areas and is improving for sure. In-store service is lacking at Wal-Mart.
6) Sustainability—Wal-Mart is unusually transparent here and they continue to add solar panels to virtually every location around the world. Amazon is either not doing as much or is secretive about it. Nod easily goes to Wal-Mart.
7) Pricing—for 14 years, I have conducted a “market basket of goods” analysis comparing pricing at Wal-Mart vs. Target, Safeway, Walgreens, CVS and some local grocery stores. Wal-Mart ALWAYS wins. The range has been a win for Wal-Mart of 12-27%. Amazon pricing can vary. The single click is enticing but, if you shop around a bit, you may find better value for a variety of goods elsewhere. On balance, Wal-Mart is usually but not always, a better buy.
When Amazon bought Whole Foods, there seemed to be some confusion in the trade press. At best, Whole Foods has 2% of the grocery market while Wal-Mart has over 50% in most US market areas. The press often said this was an opening salvo in Amazon taking over the grocery market. I saw it differently. What always has impressed me about Whole Foods was their site selection process. They look at a metro area and put stores in zip codes the have the highest percentage of people with graduate or professional degrees. They are open to organic produce and can afford to pay top dollar for groceries. That is one reason why Whole Foods is sometimes referred to as “Whole Paycheck.” Also, there was very likely an unusually high correlation between Whole Foods customers and Amazon Prime members so once they had Whole Foods on board they could get some really “big data” on these affluent and highly educated people. They not only knew what they ordered on line but what they ate and drank as well.
Can anyone compete with Amazon? Of course. Specialty retailers with over-the-top service can continue to do well. One surprise to me is how retailers who cater to the exclusive 1% are embracing online tactics and that portion of their businesses are soaring.
By now, virtually all of you have heard of Bernard Arnault, CEO of LVMH, who recently became the wealthiest man in the world as Tesla and Amazon stock prices cratered. Among the brands that this high-end player owns are Dom Perignon, Moet, Hennessey, Louis Vuitton, Veuve Clicquot, Cloudy Bay, Belvedere, Berluti, Dior, Pucci, Givenchy, Tiffany, Tag Heuer, and Bulgari among others.
Lesser known is Swiss based Compagnie Financiere Richemont which has a brand stable including Cartier, IWC, Montblanc, Van Cleef & Arpels, dunhill, Purdey, and Serapian.
Both of these luxury brand conglomerates are devoting significant attention to online sales and are experiencing double digit increases for that part of their businesses. Admittedly, they were late to the digital game but the growth is very real. The assumption was that such high-end products (other than the liquors) had to be sold in their stores in New York, London, Paris or Shanghai. Not so any longer!
The next recession (2023?) will wipe out more retailers. Amazon, Wal-Mart, Costco and the Dollar Stores (which have hurt Wal-Mart to a degree) will still be standing. Will Amazon eventually cripple Wal-Mart? At the moment, as I write, Amazon shares are selling for half of what they did a year ago. Wal-Mart stock is down about 10%. Is the market telling us something?
Years ago, I worked with a man who had handled many beer brands in his career. At the time, his beat was some struggling brands that were largely regional. Budweiser (Anheuser-Busch) was locked in a huge conflict with Miller Beer. Bud had recently signed a five-year deal with fledgling cable channel ESPN. They ran a minute of commercials per hour minimum on the 24-hour sports channel. The deal was structured to give ESPN much needed cash as they grew so billing by year was $9,7,5,3,1 million per year respectively. By the end of the five-year commitment ESPN had exploded, so it may have been the greatest buy in electronic media history. Miller, their arch-rival, did a lesser but still big buy on USA Network, which early on was a sports channel.
I asked my colleague what would happen in this “beer war.” He told me to shut the door. I did, he smiled and said, “ Don, in an elephant fight, only the ants get killed.”
Amazon and Wal-Mart are both here to stay.
Happy Holidays to MR readers around the world !
If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com
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