RMS Case Submission

Walmart Inc. Takes on Amazon.com

 Background of Case
Amazon: - Amazon was founded by Jeff Bezos in 1994
as a online book store. After initial success it lost $1.4
billion due to Internet bubble burst which had happened
in early 2000s. In 2007 Amazon launched kindle e-
reader which helps amazon to gain 83% share of E-
books market. Amazon has always focused on new
product development strategy, during 2006-16, Amazon
developed platforms across the segments like OTT or
Cloud Technology etc. The June 2017 acquisition of
Whole Foods Markets for $13.4 billion eclipsed
Amazon’s internal grocery experiments. Till 2017,
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Market capitalization of Amazon was $400 Billion.
 Background of Case
WALMART: - Walmart was founded by Sam Walton in
the year 1945 focusing on low price and high volume
model. Walmart targets rural and semi urban population
by practicing “everyday low price” policy. Walmart has
always given priority to high volume purchases that
gives Walmart high price negotiation power over
distributors. Facing a stiff competition with Amazon,
Walmart is trying hard to increase its e-commerce
market size by doing mergers and acquisitions with
various companies and launching Walmart.com.
Although Walmart is in e-commerce for a long time but
still its revenue through online sell is insignificant as 3
compare to Amazon.
Q.1) From your understanding, list the differences in the business models adopted by Walmart & Amazon. What are the competitive
advantages each of them have?

Walmart Amazon
Economy of scale(Low Price Large Inventory(Multiple
and High Volume) SKUs)
Huge operating Margins High number of Third party
sellers
Power over suppliers Low cost structure
Less Risk taking approach Synergy between local
competitors and suppliers
Limited experimenting High on experimenting
Effective Resource Ready and used to Failures
Management
Footprint in multiple sectors
Q.2) Why is the market rewarding Amazon more than Walmart?

Ans) Reasons for market favouring Amazon are:

• More customer centric approach
• Visibility across multiple sectors and combining those services to
minimize bundled cost for customers
• Targeting right segment which is more inclined towards online
shopping which is the new trend especially among millennials .
• Ready for experimenting to enrich customer experience and
increase wallet share and market dominance and learning from
each failure
• Trying to provide both facilities to customer i.e. premium segment –
rapid delivery(Prime) and remaining customer who prefer cheap
mode irrespective of delivery time.
• Technology based approach rather than traditional
approach followed by Walmart
Q.3) What is your understanding of the financial data presented in Exhibit 2
& 6? By looking at Exhibit 13, could you please summarise your
understanding?
Ans) Amazon Financials:
• With the cost of Goods sold increased almost 10 times in 10 years, the
Gross Margin increased around 15% indicating the main aim was not
always earning profit rather it was more of capturing market .
• Although the net income has increased but the net operating margin has
fallen significantly.
• Total assets has increased but the working capital has remained almost
same over the 10 years.

Walmart Financials:
• Net Sales has almost remained same with minute changes over the years,
increasing in US but decreasing Internationally due to competition from
Amazon and local vendors.
• Net Income has decreased for Walmart as well signifying less focus on
profit margin rather than on market penetration.
• Return on Assets and Equity both has decreased
Exhibit 13:

• Almost similar COGS with Amazon being slightly on higher side

due to Walmart control on suppliers hence lowering the cost,
increasing the margin.
• Amazon presenting itself more IT driven and technology enabled
company invest more than 3 times in IT as compared to Walmart.
• Walmart prime focus always being cost efficient and cheapest,
minimal spending on Marketing.
• Walmart having much higher operating income due to its multiple
store availability and Amazon incurring extra cost due to
providing rapid delivery .
• Similar SG&A, with Amazon a bit less courtesy more investment
on IT and making system more Automated and IT driven
Q.4) Please refer to Exhibit 9 and evaluate changes to consumer
behaviour from 1999-2015.In your opinion, which are the
categories that Walmart & Amazon would focus on respectively?

Ans) Categories and Targeted by:

• Media : The highest change in consumer behaviour is in Media

industry with more than 50% shift and this is the main target of
Amazon where it is giving competition to Netflix.
• Food & Beverages: With almost no change in CB in this
segment and consumer still preferring traditional way of
shopping , this could be leveraged by Walmart given it presence
and cost efficiency .
• Office Equipment's & Toys: With each one of them witnessing
around 30% shift towards online both Amazon and Walmart can
target with Amazon having a slight edge on online platform.
• Furniture: In furniture segment, Amazon could get an edge and
can target given consumer preferring delivery of furniture rather
than picking by self.

• Drugs and Health : With not much shift in CB, Walmart seems to
be a little ahead but given Amazon future aspirations to enter
into this segment could decrease Walmart shares.

• Electronics: Amazon will definitely try to target customer for

electronics given customers no rush on delivery and having
more options on Amazon than Walmart.
Q.5) Who do you think will win this retail war?

Ans) Since both companies have different approach towards

customers and market, there could be different segments
which would be dominated by one and some segments by
other, for example:

Amazon:
• Fashion
• Electronics
• Office Equipment's
• Media
• AWS

The main pain area for Amazon is to figure out how to speed
up delivery without incurring extra cost
Walmart:
• Food & Beverages
• Drugs and Health
• Groceries

The main pain area for Walmart is to maintain its

inventory and managing cost by including more
options/SKUs for the customers and increase its online
visibility and customer experience while maintaining
dominance in offline mode.
Thanks!

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