Walmart Chases Amazon...again
The retail business, especially in the world of massive eCommerce and brick and mortar giants, is hard. Margins are thin and competing on price, in addition to selection and convenience, makes growing those margins a challenge. In fact, it's not really any easier for the giants to grow margins either. Amazon's most profitable business isn't retail, it's technology. Building the world's largest eCommerce site required cloud based commerce and supply chain services that did not exist at the time Amazon was scaling, so they built them.
Birth of Amazon Web Services
By 2006 Amazon had a broad portfolio of mature cloud services to provide its infrastructure that could scale up and down as needed (holidays, for example) in support of a large and rapidly growing eCommerce business. With a great deal of excess capacity most of the year, Amazon Web Services (AWS) was born to offer that infrastructure to enterprise customers. That early move into the cloud infrastructure market, combined with excellent technology and strong leadership made and has kept AWS as the leader in platform as a service (PaaS), infrastructure as a service (IaaS), database as a service and a growing list of additional services like artificial intelligence (AI), machine learning (ML), IoT and edge computing, and a growing menu of other services ranging from quantum computing to robotics (list of services here). Several other large vendors are challenging AWS though, including Microsoft Azure, Google Cloud, Alibaba, IBM as well as the traditional enterprise tech vendors like Oracle, Salesforce and SAP. Here's an excellent overview of the landscape in 2021 at ZDNet.
Walmart Versus Amazon
As much as Amazon leads eCommerce, Walmart continues as the top brick and mortar retailer. Amazon has stayed close to its online core including a large online marketplace for 3rd party sellers, but is making some moves into physical locations including buying grocery retailer Whole Foods, launching Amazon Fresh grocery stores, building neighborhood based pick up locations and putting delivery lockers in other retail locations. Walmart, though late to eCommerce, (it bought its way into eCommerce in 2016 with a $3B acquisition of Jet), has seen rapid growth in that business, particularly over the past year and a half.
Comparing the financials, Walmart reported 2020 revenue of $559B and growth of 6.7% while Amazon reported $386B and growth of 38%. That trend continued through Q1 2021 with Walmart reporting $138B at 6.2% y/y growth and Amazon reporting $109B at 43.8% y/y growth. Walmart's eCommerce growth (on a much smaller base number) was 79% for its FY 2021, but Amazon still maintains nearly 40% share of US eCommerce versus Walmart's 7.1% share.
Walmart as a Technology Provider
As you might expect, to build and scale its eCommerce business, Walmart also has a portfolio of underlying technology. It also had a feature that allowed customers to order online and pickup in a local store. As you might expect that feature became very popular during the Covid-19 pandemic, seeing triple digit growth. As of this week, Walmart announced that it is making its underlying technology for online order / physical pickup available, as well as an online marketplace for 3rd party sellers. Walmart isn't just building a technology sales division though, it also has built a strategic partnership with Adobe. The partnership will see Adobe integrating access to the Walmart Marketplace and online / in store order and fulfillment technologies into the Adobe Commerce Platform and Magento open source solution. The offering is slated to be available by early 2022. This is the 2nd marketplace partnership this year, with Shopify coming on board in June to offer access to the Walmart marketplace through its popular eCommerce platform.
The partnership dominated the announcement this week, but apparently Walmart is going to market directly through Walmart Global Tech (and Walmart Fulfillment Services or WFS) in addition to Adobe as a distribution channel. What that go to market plan looks like though, is a bit of a mystery at this point. It is clear that the marketplace and fulfillment capabilities, which have grown to around 100K merchants, is an important part of its attempt to compete with Amazon (whose marketplace has around 6.3M total merchants and a reported 2.4M active sellers), though the scale difference is clear. The difference in breadth of technology offerings and overall scale is also pretty obvious at this point. Walmart is opening up a focused set of retail technologies and not a full cloud infrastructure (and associated services) like AWS. For Walmart though, it's a strategic initiative to increase margins, grow its marketplace, leverage its technology more effectively and compete on some level with Amazon.
