Walmart vs amazon case Flashcards
Trends
Stores closed down after the pandemic
Volume of shopping increased, so returns increase
Consumers crave convenience more→ Click and collect, this is called omnichannel shopping much more popular with consumers now
Omni channel: shop in multiple channels with multiple retailers
Combining shopping experience through omnichannel
62% of consumers prefer to shop online but pick up in physical stores
Omnichannel example → Mobile app, websites, physical stores
Omni channel benefits for the business
Lower costs
Economies of scope
Click and collect→ customer orders online then comes and picks up the items in store this reduces the delivery costs , no delivery → save on costs, and benefit of omni channel retailers
Reduce overstock through selling more
Multiple touchpoints with customers, higher market share, satisfying customers more
Cross selling → in person and online , they can come in person and find more options
Products that fit better or worse for online stores
E commerce friendly products, vs ecommerce unfriendly products
Products that fit better online: Non perishable items, hardware, electronics, music, etc
Non friendly items: grocery items, clothing , luxury items
Grocery (1.1 trillion) and apparel (317 billion) are the biggest product categories, slowest to move online, retailers were lagging in terms of grocery and apparel
Grocery: maintain the temperature in delivery trucks, special freezers in delivery trucks and need to minimize delivery times
Grocery: Consumer concern over freshness and quality, special handling that is costly, no standardization (may receive an old fruit)
Consumers need to be home to collect the groceries don’t want to leave it outside
There are low margins
Order consists of many low profit and priced items →labour intensive, chance for human error , could risk customer satisfaction, low margin
High shipping costs
Extra mile delivery costs→ paying a lot to assemble, and then deliver them
Consumers want the items to be delivered fast
Why do companies still try and sell groceries online→ demand drives it, customers expect for groceries to have a deliverable option, dont want to miss out on an opportunity
Apparel
Would be a good candidate bc items are high priced and items arent perishable but the issue is with returns
Cant try the clothes on
Huge return rate→ people cant try things on
30-40% return rate of online products
Extra labour costs,need efficient processes for returns
How much shopping happens online vs physical stores:
13.2% online (amazon)
86.8% offline (walmart, largest physical retail chain)
This case is about two lage retailers (amazon and walmart) offline walmart does better, largest physical retail chain in the world
Amazon is the largest retail store online
Sales comparison:
walmart revenue: in 2021 567.7 billion dollars in revenue
Amazon revenue: 469 billion
They are close in their numbers of revenue
Profit: walmart 25.9 billion, amazon 24.9 billion (2021)
Very similar in terms of revenue and profit (pandemic really helped amazon)
Both are publicly traded companies → Their stock: amazon has a way higher stock
why is that if they have the same financials → has to do with the excitement of the investors, they believe that amazon will continue to grow even though actual results are similar between amazon and walmart. Investors are willing to forgive amazon for trying new products and innovations and less forgiving with walmart as walmart is a more conservative company.
How did walmart become the king of physical retail
Low prices
Squeezing suppliers
Cost leadership
Established in small towns at first, chose low cost area s
Invest in technology in order to create cost efficiencies
VMI
Cross docking
Attack cost leadership on multiple aspects
Work with suppliers → suppliers are willing to forgo some of their profits to work with walmart. Gives such great distribution for its product and a lot of exposure. Want to make up profit with volume
walmart has huge economies of scale
Does amazon benefit from economies of scale→ yes they also benefit from economies of scope as they have a wide selection at a one stop shop (walmart has this)
Amazon can also squeeze suppliers as its become a huge distribution channel
Both amazon and walmart have economies of scale
Non unionized workforce→ unions cost money to businesses, walmart makes sure that there are no unions
Predominant category for walmart
One category of products that are very important to walmart and provide them a lot of revenue: grocery
Grocery is 56% of their revenue
Another strength of walmart, they have very strong geographical coverage in the US (90% of the population it covers within 10 miles)
Wamart has mastered traditional physical retail and thanks to being a cost leader
Walmart realized they had to get themselves into e commerce bc of omnichannel benefits, covid and feel threatened by amazon
What did walmart do to become more involved in e commerce
Acquired jet . com→ to get more expertise from the owner marc lore who used to work at amazon
Hired 18000 employees
Invested in 3 week training for employees and decided to pay them higher salaries than regular employees to establish online presence
Offered membership in the US in order for customers to be more loyal
Invested in their app and added features and can initiate return on app and come to store whenever to complete return
Personalized voice that speaks to customers on app by partnering with google→ strategic alliance
They attempted to acquire cornershop to grow their online presence in south america → they decided to establish their own app in south america when this failed
They provided 100% money back guarantee if consumer is not satisfied
Asked their store employees to deliver some of their online orders
Had other alliances like with doordash
They reach out to partners to help them out
Offered free shipping to customers in the US, tried to match amazon’s free shipping within same time limit
Scaled down on spending to expand to new stores and began remodeling stores they already had → allocated funds to e commerce
Pick up towers→ place an order online and a tower will drop your order
Acquired parcels for delivery
Fulfilment centres→ designated for online shopping
These costs a lot of money to shift to e commerce
What can we find as a result for all these investments to ecommerce from walmart
73 billion sales from e commerce
around 13% of their total sales , not a huge result , shows growth as their efforts are paying off but maybe not enough to justify all of the money they have put into e commerce
They also have advertising on their website, made 2 billion on advertisement so extra revenue
Online presence is costly, very few retailers say they get returns from ecommerce, for now it is a money drain, the necessary evil though
What made amazon the king of the online space
Amazon is successful because of their strategy fo being early movers to the market, they allowed as many suppliers as possible and therefore higher competition
Being a first mover advantage: brand recognition , third party sellers, prime membership loyalty program (switching costs) they receive revenue from prime, prime members spend 4x more on amazon than regular customers, their own logistics dont need to depend on other shipping companies
User friendly, technology
Can provide personalized recommendations using data and purchasing history and can target
Fulfillment centres
Whats the benefit of 3rd party sellers
more choices for customers and greater selection
made a lot of money from charging commissions to third parties
accounted for a lot of their revenue
extra revenue
dont have to invest in listing the products, save costs, lower risk (cuts production costs because they dont need to produce things themselves) customers are happier because of this extra selection
can use third party sellers data and anaylze reviews of what customers like and don’t like and create their own amazon products for successful products
Amazon prime
Creates switching costs
Fast delivery
How did amazon try to go into physical stores
Amazon realized they couldnt just benefit from online, need omni channel
Introducing brick and mortar stores like a convenience store → amazon go
Acquired amazon go to have more presence
Amazon bought 400 physical grocery stores, attacking walmart this way with grocery (huge chunk of walmarts revenue)
Amazon has fresh produce
Opened bookstores → physical bookstores → failed
Amazon style→ enabled by ai→ this failed and they closed it
Amazon can risk and invest into new initiatives, if they fail its okay bc investors forgive them but if walmart did this, investors wont forgive
Amazon has huge physical infrastructures of warehouses and fulfillment stores, very efficient
Why walmart vs amazon clash of business models
Walmart is physical retailer
Amazon is am online retailer
Both realize they need omnichannel presence
The business models arent so different anymore
