How Amazon and Walmart's HOME

head-to-head competition is TOPICS

changing retail
DEEP DIV
The evolution of the two shows that being a retail giant
means more than selling merchandise.
OPINION
Published March 3, 2021

Maria Monteros PODCAS

Associate Editor
LIBRARY
Two of the biggest retailers are raising the bar for what it means to
be a true one-stop-shop. While some companies have downsized EVENTS
their inventories and closed physical locations, retail giants,
namely Amazon and Walmart, are giving customers a broader
array of both products and services. Get Retail
Walmart reigns supreme in brick-and-mortar retail, while Amazon The free newsle
dominates e-commerce. Both retailers set themselves apart by Enter your wo
doing more than selling merchandise. They also generate revenue
from categories like financial and clinical services, third-party
sellers and subscriptions.
"Both Walmart and Amazon have gotten to such a point where
they're both, not only credible, but they have developed a huge
amount of trust, amongst their followers and their consumers,"
HOME
said Arthur Dong, teaching professor of strategy and economics at
Georgetown University's McDonough School of Business. "I think
TOPICS
they're just scratching the surface now."

Amazon and Walmart have increasingly produced revenue streams DEEP DIV

outside of their core businesses. In recent years, both companies

have been building out their ecosystem designed to win more of OPINION

their consumers' spending dollars.

PODCAS
Walmart opened a "Walmart Health center" in its Dallas, Georgia
store, and about 100 in-store veterinary clinics in 2019. And just LIBRARY
last month, the Bentonville, Arkansas-based retailer announced
plans to launch a fintech startup in partnership with Ribbit EVENTS
Capital. Bloomberg recently reported that Walmart hired two
senior bankers from Goldman Sachs to operate the startup, moving
the retailer closer to becoming a financial service provider. Get Retail
President and CEO Doug McMillon said in an earnings call a few The free newsle

weeks ago that Walmart is in the early stages of building a new Enter your wo
customer-focused business model, built to thrive in the next couple
of years. "Over time, we believe the big winners in retail will be
those that deliver a unique interrelated ecosystem," he said.
Meanwhile, Amazon, which started as an online bookstore, now
sells almost everything and more. It's also a cloud provider, has a
collection of subscription services and collects commission from
HOME
third-party sellers.

"You have to consider the fact that both companies are huge data TOPICS

companies, and that we all know that the future of retail is the fact
that you have information on all your consumers [and] what their DEEP DIV

buying preferences are," Dong said about Walmart and Amazon.

"That is the, in a sense, the oil and gold in the decades to come." OPINION

PODCAS
Following the money
LIBRARY
The pandemic has altered where and how retailers invest their
money. Dong said some retailers have now entered the service
EVENTS
space due to its low operation cost, unlike selling goods that
require fulfillment and shipping fees.

Retailers are "going to pick and choose their spaces wisely," he Get Retail
said. "There are certain services that they certainly can't really
The free newsle
deliver and deliver well."
Enter your wo
Even so, Dong said the retail sector will continue to drive
consumer purchases, citing that personal consumption
expenditures still account for about two-thirds of the U.S.
economy. And based on Amazon and Walmart's financial reports,
that seems to be the case.

HOME

TOPICS

DEEP DIV

OPINION

PODCAS
Caroline Jansen for Retail Dive; Source: company documents

LIBRARY
Amazon has significantly expanded its business over the last
couple of years. Its latest annual report shows that online store EVENTS

sales remain the bedrock of Amazon's business with about $197.35

billion in net revenue by the end of 2020 — that's a little over half
(51.1%) of its total sales. Its physical stores earned the lowest in Get Retail
2020 at $16.23 billion or 4.2%. The free newsle

Its cloud computing business, Amazon Web Service, led previously Enter your wo

by soon-to-be Amazon CEO Andy Jassy, was responsible for over

$13.53 billion or 59.1% of its operating income in 2020. With
$45.37 billion in annual revenue, AWS has a year-over-year growth
of about 30%.

On the other hand, Walmart does not break out the individual cost HOME
of its business ventures.
TOPICS
For fiscal 2020, Walmart's grocery and general merchandise
categories were still the foundation of its net sales at $190.55 DEEP DIV
billion (55.9%) and $109.60 billion (32.1%), respectively.
Meanwhile, its health and wellness category — which includes its OPINION
pharmacy, optical and clinical services — drove $37.51 billion in
net sales in the same year. PODCAS

LIBRARY

EVENTS

Get Retail
The free newsle

Enter your wo
Caroline Jansen for Retail Dive; Source: company documents
Some pandemic-driven initiatives have born fruit. Only five
months after the launch of Walmart+, the retailer's subscription
service, between 7.4 million and 8.2 million customers were willing
HOME
to pay $98 a year for its perks, according to Consumer Intelligence
Research Partners' estimates. That means that the subscription
TOPICS
service could generate up to $803.6 million a year in revenue.

DEEP DIV

$803.6 million OPINION

Walmart+ subscription service could generate up to $803.6 PODCAS

million a year.

Source: Consumer Intelligence Research Partners LIBRARY

EVENTS
Forming partnerships is a popular method retailers use to enter
markets they don't specialize in. But in Amazon and Walmart's
case, their goal may be to build these businesses in-house, said Jon Get Retail
Reily, president of Dentsu Commerce.
The free newsle
"They move away from their core business of selling products to Enter your wo
being their own manufacturer," he said. "The recurring theme of
all of this is that all retailers are trying to expand, not necessarily to
find new ways to serve their customers, but to find new ways of
finding revenue."

When retailers don't rely on third-party firms, it insulates them HOME

from the economic woes affecting the industry, said Reily. It
protects them from the long-term and short-term possibilities of TOPICS

their partner going bankrupt or acquired by a competitor, he said.

DEEP DIV
But whether this strategy is financially sustainable "remains to be
seen," he said, adding that it may not pay off anytime soon. OPINION

"That's not an easy thing to do, and it's expensive," he said about
PODCAS
the risks of entering new business categories, adding that it's hard
to attribute how much value it brings to the company. "You play in
LIBRARY
the market knowing that it is working but you can't really draw a
line on an Excel spreadsheet and say this dollar is responsible for
EVENTS
these dollars."

Get Retail
The free newsle

Enter your wo
 HOME

TOPICS

DEEP DIV

OPINION
Caroline Jansen for Retail Dive; Source: company documents

PODCAS

Setting the trend

LIBRARY
The pandemic has proven that firms need to re-evaluate some
retail concepts and strategies, experts say. EVENTS

Because they have more financial wiggle room and a larger

consumer base, retail giants are able to experiment and potentially
Get Retail
set trends for their smaller counterparts.
The free newsle
Diversifying away from their core retail business naturally starts Enter your wo
with larger retailers but others may soon do the same in some way,
said Meyar Sheik, Kibo's chief commerce officer and Certona
founder. Smaller brands likely won't operate on the same scale as
industry giants, but the bottom line is to get a higher share of their
customers' wallets, he said.

For smaller retailers, following the playbook at Amazon or HOME

Walmart of offering a wide assortment or adding services makes
little sense, Sheik said. "It's really about valuing your customer TOPICS

base, understanding [and] knowing them."

DEEP DIV
That alone is enough of a challenge. A recent survey from Forrester
showed that only a few brands can anticipate and effectively OPINION
respond to their customers' needs. The report found that too many
brands still rely on manual data collection methods, and in most PODCAS
cases, they don't update that customer data in real time.
LIBRARY
To create an effective ecosystem, retailers must establish an
effective team to gather data and market research, said Tim
EVENTS
Derdenger, associate professor of marketing and strategy at
Carnegie Mellon University.

"Data is the number one driver of what enables the ecosystem Get Retail
slash platforms to scale, and to provide value back to the end The free newsle
users," he said. "If you have terrible data, you won't be able to
Enter your wo
facilitate an interaction that provides value for both end-users."

Risk of this strategy

The idea of becoming the go-to store for all essential products is
not a new concept. However, many of those businesses that tried to
capitalize on a broad variety of markets are now downsizing and
HOME
becoming more niche.

"Oftentimes, when these companies try to do too much in the TOPICS

depth and the breadth of what they're doing, you start to dilute
actually your focus," said Dong. "A lot of it has to do with whether DEEP DIV

or not you have the human capability and the management

capability to keep up with all the various activities that you want to OPINION

engage in — all you're doing is adding complexity."

PODCAS
About a decade ago, Sears Holdings also offered a large array of
products and services. At that time, it had more than 3,900 stores LIBRARY
under its name and it owned a plethora of brands and companies
— from credit cards to insurance. But in recent years, it has slowly EVENTS
liquidated its footprint.

Get Retail
Other retailers, once commended for their size and scale, have also
downsized. Macy's announced 125 store closures a year ago, and
while J.C. Penney has exited bankruptcy, it moved to close 144 The free newsle

stores in the process. Enter your wo

"It's a little bit dangerous, and shareholders have a right to be

skeptical when companies try to overstep and overreach," Dong
said. "Generally, there's not a lot of history, and if there's anything
that's going on in modern business history, that is, it's the big that
are getting smaller.
HOME

TOPICS

DEEP DIV

OPINION

PODCAS

LIBRARY

EVENTS

Get Retail
The free newsle

Enter your wo