Amazon (AMZN) surpassed Wal-Mart (WMT) as the retailer with the highest market capitalization in America a few years ago. Thankfully for its shareholders Wal-Mart is not a company that gives up easily when faced with hearty opposition. In fact, through an aggressive e-commerce strategy, Wal-Mart is poised to not only recapture the number one retailer spot but also to decidedly dominate the retail market once again.
What Are Wal-Mart's New Moves?
Wal-Mart's latest salvo is leveraging what the retailer does best, discount pricing but with a catch. It announced that customers can avail extra discounts on more than 10,000 products if they purchase online and pick them up in store. The pickup discount, as the retailer termed it is essentially saving of the shipping costs.
"We can remove the last mile delivery costs (that represent the lion’s share of the costs to ship products to customers’ homes) when we leverage our fleet of more than 6,700 trucks to deliver products directly from fulfillment centers to our 4,700 stores. This means, quite simply, it costs less for us to ship to stores," said Wal-Mart U.S. eCommerce President and CEO Marc Lore in a statement.
Earlier this year, had intensified its clash with Amazon by offering free 2-day shipping on popular items on orders over $35, something Amazon has had great success with through its Amazon Prime membership program.
How Do Amazon and Wal-Mart Compete?
Let’s step back and look at the slow, steady rise of these retail giants. Wal-Mart was founded in 1962 in Arkansas by Sam Walton, a man committed to bringing the lowest prices to Americans and squeezing out profit on volume, not high margins. One store became two, then 100, and today there are over 11,500 retail stores worldwide.
The story of Amazon is well-known—originally started in 1994 as an e-commerce bookstore, the site grew in popularity and today sells over 250 million different products. When Amazon began to diversify away from being an online bookseller, they began competing directly with Wal-Mart’s general merchandising division.
In 2007, Amazon started going after some of Wal-Mart’s enormous grocery business with its new service Amazon Fresh. Wal-Mart reacted by introducing a grocery delivery and pick-up in certain markets. Wal-Mart also fought back by introducing ShippingPass, a service that offers free three-day shipping for $50 per year, to compete with Amazon’s free two-day shipping program, Amazon Prime. (For related reading, see: Patience Will Pay With Amazon Prime.)
Where Wal-Mart Should Compete With Amazon
Online ordering is the retail sector in which Wal-Mart can easily dominate. Today, 90% of the country lives within 15 minutes of a Wal-Mart. When a store is that reachable by so many people, fantastic opportunities arise.
Wal-Mart has started to get into the grocery delivery and pick-up market after Amazon began its Amazon Fresh grocery business. Wal-Mart is already the number one grocer in America and this added service is a natural extension of its $161 billion business segment.
With an existing distribution network in place and a fantastic supply chain management system at its disposal, how has Amazon been able to get such a large market share? The obvious answer is complacency on Wal-Mart’s part.
Wal-Mart needs to ramp up their pick-up and delivery services. Right now their pick-up services are catering to their bread and butter (medium cities and rural areas), while Amazon is focusing on the larger urban centers. Once Wal-Mart increases the number of cities that it services, the service will become wildly popular with busy Americans, leading to online grocery shopping becoming second nature to most. (For more, see: Is Online Shopping Killing Brick-And-Mortar?)
Why Should Wal-Mart Compete Against Amazon?
Since so many people live close to a Wal-Mart and the perishable groceries are already rotating in regularly, Wal-Mart can provide fresher products than Amazon in a far larger number of markets. With pick-up options, the unbanked of America—those who rely on cash or who don’t participate in traditional banking—would be able to pay cash upon pick-up, an option that these 9.6 million households don’t have when shopping with Amazon.
With Wal-Mart’s reputation of being a terrible place to shop, a delivery service option offers up a way to get low prices by shopping at Wal-Mart without actually shopping at Wal-Mart. By letting the market decide what it wants via online ordering, products that could potentially sell well but aren’t stocked for fear of going stale could be custom ordered online and shipped to any Wal-Mart with a small delay. (For more, see: Yum! Brands Taco Bell Takes Ordering Online.)
Once the grocery delivery and pick-up businesses are in full swing, Wal-Mart should begin aggressively promoting the same services for its non-grocery products. The ability to order something online and then pick it up the same day at a local Wal-Mart without having to wade through hundreds of Wal-Mart shoppers (or even leave the car!) is enough to convert any Amazon shopper to Wal-Mart.
Where Wal-Mart Shouldn’t Compete With Amazon
Part of Amazon’s business strategy is to broker deals between third-party sellers and buyers. Wal-Mart shouldn’t compete in this domain since it varies too far from its core business. While Amazon already has the existing infrastructure in place to print books as they’re ordered or to operate completely fulfilled by Amazon, Wal-Mart would need to invest millions to compete and would be the late-comer to the area.
Amazon Kindle, Amazon Fire and accessory products are also not areas of business in which Wal-Mart can easily excel. A Wal-Mart e-reader or Wal-Mart cell phone are products that will get lost in the abundance of existing options already available to Americans.
Finally, web-related services like video streaming, e-book downloading and Amazon’s other technology businesses should be left to Amazon. The idea of Wal-Mart getting into the video production business boggles the mind and is not where the retail giant’s money or focus should be.