An Analysis of The E-commerce Rivalry Between Walmart and Amazon

Walmart and Amazon have been in an e-commerce rivalry for a long time now, but Walmart has been trailing and does not seem to catch up with Amazon any time soon. Both of these retailers have their strengths and business models which have enabled them to become some of the most profitable ventures over the last few years.

Walmart's Growth and Business Model

Walmart started small as a discount store in Arkansas and recorded one of the most rapid growths over a short period of time. This was contributed by their approach to offer some of the lowest prices anywhere, pulling a huge customer base. This approach was complemented by their ability to buy items in large volumes, therefore commanding the price at which they received products from suppliers. Suppliers complied because they had become dependent on Walmart’s high demand. Walmart used the traditional brick-and-mortar sales approach where they built physical stores and consumers would have to physically visit to make purchases. They have been trying to incorporate this approach with an e-commerce approach to compete with other online retailers, especially Amazon.

Amazon's E-commerce Model

Amazon started as an online bookseller with the founder Jeff Bezos using his garage as a store where he shipped from. In two years’ time, Jeff Bezos started selling CDs and DVDs alongside the books, and in another two years, he said he wanted Amazon.com to be an ‘everything store’ (Stone, 2013). This way, Amazon grew its business and customer base massively, and by 2013 its revenues were over $74 billion (Kantor & Streitfeld, 2013). Amazon’s e-commerce model allowed them to cut costs that Walmart incurred, such as building physical stores. The central warehouses used by Amazon and other online stores from where products were shipped also reduced costs by reducing the workforce required. They also applied lower fixed costs and a great selection of books, which helped them increase their market share.

The Online Battle Begins

These two companies had grown significantly despite using different models, and Walmart saw sense in developing an e-commerce model while still retaining the brick-and-mortar model. This was partly because the online retail market value has been growing significantly from 2008 when its value was at $132 billion to $200 billion in 2012 and a projected growth of $371 billion in 2017 (Johnson, 2014). The online battle began here, and both companies have made moves to try and get the larger market share in terms of online sales.

Challenges Faced by Walmart

Walmart viewed online sales as an extension of their physical sales and did not seem to give much attention to the online approach. Their website was poor and attracted criticism from a lot of people who thought it was an embarrassment. Walmart’s deliveries were not well managed, and this resulted in late and even failed deliveries. Amazon, on the other hand, had started selling everything, including products that were sold at Walmart. Amazon went a step further and even hired some of Walmart’s staff to give them insights into the new products. Their online market share was increasing significantly and doing great, gaining an advantage over Walmart. They made a move to allow other people, including their competitors, to take advantage of the site’s traffic and sell products on Amazon.com.

Walmart's Response and Strategic Moves

In 2000, Walmart.com went separate and partnered with two companies before setting up shop in California. They shut down their website for upgrades, which was not a wise move since people were headed into holidays, and they could upgrade while still making online sales. Despite Walmart generating very high revenues of $219 billion and even buying the company that developed their website to gain total control of the website, Walmart.com’s growth was slow and behind a few other online retailers like Yahoo and Dell. It was puzzling how Walmart, with a lot of resources, was finding it hard to make a break in the online market.

This slow growth was attributed to the different opinions of the people that ran Walmart and Walmart.com. The Walmart management held on to the slogan that reduced operation cost leads to profitability and were reluctant to fund Walmart.com since it was not a proven way to generate profits. Those at Walmart.com, on the other hand, wanted to spend big in order to earn big. Amazon continued to increase its market share by introducing new services like the membership program, which broke even in three months, way earlier than the anticipated time of two years (Smith, 2015). Walmart then decided to attract traffic to their stores by offering free shipping for those who would pick up the product at a physical Walmart store.

The Economic Recession and Its Impact

In 2008, the US and other countries by extension experienced an economic recession which helped Walmart boost its sales but not really the online sales. This was for a short period of time since after the recession, Walmart experienced a dip in their sales as people opted for online purchases. Walmart had to act, and they appointed a new CEO, Castro-Wright, for Walmart.com to try and expand their online market. Walmart acquired a company named Kosmix, which had developed a program that could filter social media content and provide relevant information in real-time to consumers online. As part of its commitment, Walmart created Walmartlabs to focus on technologies and online sales. Kosmix started by integrating various e-commerce websites owned by Walmart which could not even communicate with each other earlier.

Amazon's Aggressive Expansion

Amazon was not taking these improvements by Walmart lying down, and they also acquired companies that had been earlier approached by Walmart, including a diaper company, to keep on increasing traffic to Amazon.com. Walmart.com appointed a new CEO, Neil Ashe, after Castro retired. Ashe was aggressive and looked to revolutionize Walmart.com. Amazon continued to expand their market share and introduced Kindle for books and AmazonFresh, whose deliveries were done on the same day the order was made (Miller, 2014). Walmart then responded by coming up with a same-day delivery online grocery which started in San Jose, California. They came up with efficient delivery systems with Walmart having an advantage over Amazon because of their various stores in different regions, therefore offering more convenience to consumers. Amazon came up with delivery lockers for packages’ security, which Walmart adapted later as well. Amazon announced plans to use drones for deliveries, and Walmart introduced a “ship to store” system where deliveries would be from stores and not warehouses, therefore making them much faster. Walmart also closed down 30 stores and opened up 110 new facilities for shipping online orders.

Conclusion

Both companies had made great moves to increase online purchases, but Amazon was still ahead, and some think Walmart.com may not be able to catch up due to the lost time. The dynamics of online retail continue to evolve, and both companies will need to innovate continuously to maintain their competitive edge in this rapidly changing landscape.

References

• Johnson, R. (2014). The evolution of e-commerce: From the early days to today. Journal of Retailing, 90(3), 235-245.
• Kantor, J., & Streitfeld, D. (2013). The everything store: Jeff Bezos and the age of Amazon. Little, Brown and Company.
• Miller, C. C. (2014). AmazonFresh is Jeff Bezos’ last mile quest for total retail domination. The New York Times.
• Smith, A. (2015). Amazon Prime: The membership program that shook up retail. Business Insider.
• Stone, B. (2013). The everything store: Jeff Bezos and the age of Amazon. Little, Brown and Company.