6/26

The June 3 Walmart annual meeting spawned numerous news stories, features, and analyses on the giant retailer's competition with Amazon. This competition can be abstracted to encompass issues beyond the two players: virtual inventory versus customer-facing stock, digital space vs physical space, even between saving money or saving time.

As this blog has noted previously, it is certainly a competition related to how and by whom and from where demand is expressed.

But what all of these diverse angles on the competition share is a dependence on supply chain velocity, as in speed and direction and, I add, depth.  "Owning" demand is only meaningful to the extent demand can be effectively supplied.  Speed without precision targeting -- in terms of time and space -- is a waste of energy.  Careful curators can claim narrow niches, but mass customization requires more choice, not less.

On June 4 The Economist offered this overview:

Rather than driving to a big box, many Americans are shopping online instead. American e-commerce accounted for 10.4% of retail sales last year, up from 9.3% in 2014, according to Morgan Stanley, a bank. Amazon is the force behind this, with sales in North America rising by nearly 30% in 2015. The choice for bricks-and-mortar retailers is clear: evolve or decline. 

Amid this tumult Walmart remains a titan. It is not just the world’s biggest retailer but also its largest private employer and company, measured by revenue. Last year it raked in $482 billion. Walmart’s empire is global, but America is its particular dominion, accounting for three-quarters of its sales. And on home turf Walmart still towers above Amazon, accounting for 10.6% of America’s retail sales, more than twice Amazon’s share, according to Cowen, a financial-services firm.

Yet Amazon is still growing fast, and Walmart may be past its peak. In 2009 Walmart commanded 11.6% of American retail sales. By 2018 Cowen reckons its share will be stuck at 10.6%, whereas Amazon’s will have jumped.

Strategically -- perhaps culturally -- the long-time focus at Walmart has been supply chain efficiency to achieve price advantage. Walmart also began and continues as a mostly non-urban enterprise.

The origin of Amazon was a bit (but only a bit) less focused on price while very intent on convenience.  It was born mostly agnostic in terms of urban vs. non-urban, but in practice is especially favored by younger, more affluent, and more urban demographics.

Each enterprise started life by disrupting non-perishables:  Amazon with books, Walmart with clothing.  But in 1987-1988 Walmart entered the grocery sector.  Its success in grocery -- surprising many and confounding most grocery leaders -- revolutionized the US sector and set the foundation for the behemoth Walmart has since become.

I perceive that the real battle between Amazon and Walmart is just beginning and will likely be decided in terms of how each claims and protects grocery market share over the next ten years.

At its annual meeting Walmart announced it is, "partnering with Uber, Lyft and Deliv to begin testing last-mile grocery delivery services. Walmart expects to start the pilot program within the next two weeks in Denver and one additional, unspecified market. This is on top of a smaller pilot program in Miami between Sam's Club and Deliv, which started in March. That said, it's clear Walmart has figured out how it can leverage its massive brick-and-mortar footprint -- where 75 percent of the U.S. population lives within five miles of a Walmart store -- to bring down costs and expand online grocery services more rapidly than the rest."

By reconceiving Walmart Supercenters as ecommerce cross-docks, the retailer could offer much higher velocity grocery services without anything close to the same capital costs that will be necessary for Amazon or other new grocery sector entrants. By partnering with innovative transportation partners,Walmart can forward deploy its preexisting supply chain investments for a whole new customer base.  That's a big head start.

It does not solve some serious marketing problems.  It does not solve potential SKU proliferation problems.  It will not happen overnight or without headaches.  But if the existing Walmart supply chain can be adapted to effective on-demand delivery, this will complicate market entry for others and support Walmart's ability to extend ecommerce advantages beyond grocery.

Last fall Neil Ashe, Walmart's head of global ecommerce, told financial analysts, “Online retail is hard, grocery retail is really hard, so online grocery is of course really, really hard. We are uniquely positioned in this space, we've 15 years of experience from the U.K. and experience now over the last couple in the U.S.,” he said. “We know how to execute this and we have got the physical footprint to make it work.”