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ECON352-AMAZONVS.WALMART.docxECON 352: AMAZON VS. WALMART
http://www.businessinsider.com/wal-mart-ecommerce-vs-amazon-2015-7
http://www.businessinsider.com/walmart-vs-amazon-market-cap-2016-8
It's not really about physical stores vs online anymore
TIME, 2015
A few years ago, Walmart was the undisputed ruler of retail. Its $444 billion in revenue in 2012 was 16 times the revenue of Amazon and equal to 3% of the U.S. economy. It was the third-most valuable American company and the most valuable retailer by a wide margin.
But then a new narrative began to appear. As online retail growth surpassed that of Walmart’s traditional retail model, a rivalry emerged between Walmart and Amazon, as price wars broke out. Today, Walmart’s revenue is still much larger–although only 5 times larger now–and Amazon’s revenue per employee ($623,000) is nearly three times that of Walmart.
More noticeably, Amazon’s market cap this summer surpassed that of Walmart’s. Amazon is currently valued at $244 billion to its rival’s $206 billion. As much as that news was seen as evidence of Amazon’s unstoppable rise, it had just as much if not more to do with a slow decline Walmart has been trapped in.
After reaching an all-time peak of $90 a share in January, Walmart’s stock has slumped 30% to close at $64 a share Thursday. And as visible as the rivalry is between these two retail giants, their stocks, viewed from an investment standpoint, are very different stocks.
It’s not just that Amazon is soaring this year while Walmart is sinking. It’s that one of them is a prized growth company and the other an aging, struggling giant that is paying billions a year in dividends to keep investors from selling. Put in retail terms, Amazon is the high-end product that people are willing to pay a crazy premium for, while Walmart is now something you might find in the bargain bin.
After growing for decades, Walmart’s revenue and net income have both flatlined or even declined in recent years. Once accustomed to double-digit annual growth, Walmart’s revenue in the past 12 months totaled $485.6 billion, up a mere 2.8% over the past two years. Net income over the past 12 months totaled $15.5 billion, down 8.8% from two years earlier.
Amazon, too, has at times elicited shareholder complaints about its net income, but it’s widely known Amazon plows potential profits back into its future growth. With revenue steadily growing around 20% a year, most shareholders are more than content with that approach. Besides, when concerns mounted this year about aggressive spending, the company showed it could ease off the gas pedal to moderate its capital investments.
What Amazon doesn’t do is spend billions of dollars a year on share buybacks. And it’s never offered a dividend. Where Amazon is putting what it can into future growth, Walmart returns billions in capital each year to shareholders. In June 2013, Walmart’s board authorized a $15 billion stock buyback program. After a little more than two years, it’s already spent $6 billion, according to SEC filings.
On top of that, Walmart is paying out about $6 billion a year in dividends. Factor in buybacks, and the company is returning about $9 billion a year to shareholders. And even then, shareholders have been driving down its stock price. Walmart has a dividend yield equal to more than 3% of its current stock price. That makes it attractive for value investors–which is a Wall Street term for bargain hunters.
Much of this selling has been tied to a sense that Walmart is facing long-term problems. The company raised its entry wage to $9 an hour in April with plans to have all associate paid at least $10 an hour next February. This is long overdue and could help Walmart by reducing turnover, improving service and avoiding training new workers. But it’s pressuring profit margins in the near term.
Walmart has also been trying to retool the way employees interact with customers inside the store, opening “Neighborhood Markets” a fifth the size of its supercenters, and integrating its online and offline sales as part of an ambitious turnaround plan. Like many turnaround efforts, Walmart’s could take years to complete and my involve more investing up front before the benefits become evident.
In the meantime, Amazon continues to push into new areas to counter the slowing growth of its own core retail site. Walmart’s efforts to reignite growth seem like reactions to problems it’s seeing today. Amazon’s investments in the cloud and video markets seem aimed at creating markets that will be growing a few years from now. Matters of perception perhaps, but not without consequences for both firms’ stock price.
Which may tell you all you need to know about the rivalry of these two big retailers. One is seen as a growth stock, the other as a value play that might be recovering in a couple of years. One is investing in new ambitious projects, the other in steady payouts to today’s shareholders. And of course, one has been rising while the other has been declining in recent months. From an investment standpoint, these are two very different ventures.
4. Amazon vs. Wal-Mart: Who's Winning Retail's Title Fight?
March 04, 2016, 04:32:00 PM EDT By Investor's Business Daily
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Shutterstock photo
Online retail sales continue to skyrocket. Meanwhile, many brick-and-mortar retailer stores are laying off employees.
Like other traditional brick-and-mortar retailers,Wal-Mart Stores ( WMT ) competes with the shop-from-anywhere convenience thatAmazon.com ( AMZN ) and other online retailers offer, as well as perks like free two-day shipping on nearly all products plus free streaming of music and tens of thousands of movies and TV shows with Amazon Prime.
On the surface, it appears that online retailers have traditional retailers on the ropes. But the fight is entering a new round, analysts say, as both online and brick-and-mortar retailers embrace new technology that's erasing boundaries between them.
In some ways, the effect that online stores are having on traditional retailers is similar to the offshoring drive that gained momentum several decades ago as U.S. manufacturers went to China for low wage costs. That trend reduced the number of manufacturing jobs in America.
Likewise, the trend to online retail is having a major impact on the U.S. economy by cutting jobs. Retail Metrics President Ken Perkins says that it's hard to come by accurate hard data on exactly how many jobs are lost as a result of retail store layoffs and store closings, but more jobs are being lost than gained.
"I don't think many traditional retail CEOs would say publicly, 'Amazon is eating our lunch,' " Perkins told IBD. "But they (traditional retailers) are not hiring anywhere near the number of people needed to offset the store closings we've seen."
Among stores that had net fewer stores at the end of 2015 vs. the end of 2014, auto parts chainAdvance Auto Parts ( AAP ) reported a net change of 160 fewer stores, according to Retail Metrics data compiled from company reports.
Office Depot ( ODP ) shed 181 stores.Walgreens Boots Alliance ( WBA ), which completed the Walgreen and Boots Alliance merger at the end of 2014, had a net loss of 57 stores in 2015 as it merged the companies. Leather goods retailerCoach (COH) lost 45 stores, and struggling women's apparel retailerBebe Stores (BEBE) was down net 60 stores, among others.
The outlook for retail employment is cloudy. Cowen & Co. analyst Oliver Chen said that total U.S. retail sales, both online and in-store, currently are good but not great.
"Retail sales aren't getting exuberant type of growth," Chen said. The outlook is better for spending by middle to lower-end consumers, who benefit more from lower unemployment and cheap gas, he said. But high earners saw their stock portfolios plunge in early 2016, which could curb their retail spending for awhile.
"There is disruption happening. The power has shifted to consumers," as online and old-line retailers battle for consumers' dollars, Chen said.
Malls Are Much Emptier
Wal-Mart, with more than $482 billion in revenue last year, said on Jan. 15 that it was closing 269 stores globally. But the retail giant said in the same report that it "will continue to invest in its future," including opening roughly 154 new stores in the U.S. and 200 to 240 internationally in 2016, likely giving it a net gain in stores this year.
Wal-Mart President and CEO C. Douglas McMillon told analysts on the company's fourth-quarter earnings call on Feb. 18, "We're improving our stores, adding critical capabilities and deepening our digital relationships with customers as we work to become the first to deliver a seamless shopping experience at scale."
Meanwhile, online retail pioneers such aseBay (EBAY) and Amazon are expanding into adjacent markets that often overlap traditional stores. Amazon has been expanding home grocery delivery via its AmazonFresh service, competing with No. 1 U.S. supermarket chainKroger (KR) as well as Wal-Mart andTarget (TGT), which have expanded grocery offerings in recent years.
In February of this year, Amazon reportedly quietly rolled out its own private label fashion apparel. It ramps up competition with highly rated apparel retailers likeMichael Kors (KORS),Francesca's (FRAN) andRoss Stores (ROST), whose stock is on the IBD Leaderboard list of top-rated stocks. Women's Wear Daily has cited KeyBanc Capital data in saying that Amazon has introduced at least seven private label fashion brands with about 1,800 items.
Technology is driving the integration of online and brick-and-mortar retail, according to John Challenger, president of outplacement firm Challenger, Gray & Christmas.
"Malls today are much emptier," Challenger said in an IBD interview. "There is no question (traditional) retailers are trying hard to figure out how to draw people to stores. Just like movie theaters are trying to figure out how to bring people in rather than watch movies on TV," with offerings like dinner-and-a-meal theaters.
Among the trends at work are mobile shopping via smartphones and tablets, and the rise of "destination" malls that feature spa services, movie theaters, fine restaurants and kiosks that sell autos, he said.
More people are shopping with smartphone apps, both in stores and online. They shop and buy goods at home or on the road with their phone. They search for prices and coupons while in stores, including checking competitors' prices for items they want.
U.S. Bureau of Labor Statistics data show that total retail employment (online and in-store) in 2015 for the first time rose above the pre-recession high-water mark of 15.57 million set in 2007, climbing to 15.75 million.
But the National Retail Federation in its annual forecast released on Feb. 10 said that it expects retail sales employment gains of about 190,000 on a monthly average this year, down from 2015's high point.
A Feb. 12 Commerce Department retail sales report highlights the dilemma that traditional retailers face. Total retail sales grew 3.4% in 2015 to $449.9 billion. But the bulk of growth was in the "nonstore retailers" category -- mainly online shopping, which jumped 10.5% for the year to $36.2 billion.
The U.S. retail market is attracting global competition, too. "The transition to online shopping and globalization together are changing how our workforce operates and the skills needed. New technology sets the foundation for new jobs," Challenger said.
A recent retail immigrant is Dublin-based fashion retailer Primark, which opened its first U.S. store in Boston in September. It recently added another store in New York City and plans to expand in other cities in Massachusetts, Pennsylvania, Connecticut and New Jersey.
But the mature and competitive U.S. retail market is a tough nut to crack. China-basedAlibaba Group Holdings (BABA) launched 11Main.com, a retail site for U.S. markets, in June 2014. After making little headway, it sold the site to privately-held online marketplace operator OpenSky a year later (but also took a 37.5% stake in OpenSky). Alibaba has since said little about approaching U.S. markets, but in February it announced that it had taken a 5.6% stake (33 million shares) in online deals websiteGroupon (GRPN).
Some U.S. traditional retailers are expanding their stores. Decorative hardware, bathware, furniture and lighting retailerRestoration Hardware (RH), for example, has traditionally operated stores of 6,000 to 8,000 square feet. Now it's in the process of opening superstores with up to 50,000 square feet of space in major markets, which will boost its hiring.
U.S. Retail In 2020
PricewaterhouseCoopers recently released "Total Retail 2016," a study identifying economic drivers that could reshape the U.S. retail landscape. The market tracker surveyed consumers, who said that ease of checkout and informed store associates were the top things they want in brick-and-mortar retailers.
Steve Barr, PricewaterhouseCoopers' U.S. retail and consumer sector analyst, told IBD that thanks to recent developments, "The retail store is not dead. There is a unique opportunity for leading retailers to engage with consumers whenever and wherever they like to shop."
"As stores transform into enhanced experiences, there is a real need for employees to take care of customers. There will be a meaningful shift in jobs," Barr said.
Retail Metrics' Perkins said that the overall picture for retailers this year looks good. "Certainly there are some underlying developments that should boost solid spending this year. Jobs are good, and gas is selling as low as $1.75 a gallon. Who would have thought that several years ago?"
Still, Cowen & Co.'s Chen said that for online and brick-and-mortar retailers, "There are lots of battles to be fought. And they are happening now."
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
5. Amazon Vs. Walmart: Clash Of The Titans
I was speaking recently at the PROJECT Conference in NYC when a fellow panelist, Joseph Ferrara, Co-Founder of Resonance Companies, mentioned the fact that we should be paying close attention to the epic battle between Amazon and Walmart. In one corner, we have the undisputed heavyweight champion of online retailing. In the other, the biggest brick-and-mortar retailer in the world.
As I watched these titans’ online pricing war during last year’s holiday season unfold – which I documented in a previous Forbes article – I began to wonder if the victor really will be decided by whoever wins the price battle. If so, how will it play out? One wins and then jacks up the price as soon as the other is mortally wounded? Or are there other factors in play?
Ultimately, I believe there are three things that will determine the eventual winner (or maybe more importantly, the loser):
A Boeing 767 Amazon.com “Prime Air” cargo plane is seen through curtains as it is displayed Thursday, Aug. 4, 2016, in a Boeing hangar in Seattle. (AP Photo/Ted S. Warren)
1) Amazon and Walmart: Know thyself – and your customers
As a whole, retailers need to step back and figure out who they truly are and how they serve their specific set of customers. This is a challenge when you choose products and assortments based on emotion, intuition and a fear-driven management style. Then, after being wrong long enough, these executives jump ship, only to repeat the same cycle every 2-3 years.
Retailers: Stop the madness! Use data to make decisions.
This is where Amazon is ahead of Walmart – for now at least. Amazon is well-known for its algorithmic approach to presenting particular products to its customers, as well as using real-time data to fuel dynamic pricing. Walmart, on the other hand, has lagged behind significantly when it comes to building a robust online platform that can even come close to Amazon’s. The absence of an online platform that can collect the volume and quality of consumer data needed for stronger decision-making has set Walmart back.
As the Wall Street Journal pointed out, Walmart’s e-commerce sales in 2015 totaled about $14 billion, which was just 3 percent of its $482 billion in total yearly revenue. As a comparison, Amazon’s sales hit $107 billion last year, a figure that includes its web-service division.
An employee walks past a stack of empty boxes at the Jet.com Inc. fulfillment center on Cyber Monday in Kansas City, Kansas, U.S., on Monday, Nov. 30, 2015. Photographer: Daniel Acker/Bloomberg
Walmart’s recent $3.3 billion acquisition of Jet, however, gives it a platform to compete with Amazon online, a sign that the retailer understands that it can no longer afford to have e-commerce be so dramatically subordinate to its core business. The acquisition of Jet solves some key problems for Walmart. Jet offers lower prices than Amazon by being a distributed marketplace of sellers rather than holding its own inventory. It’s also very data-savvy, taking into account things like customer shopping data, the basket size of each order and the particular merchandise it sells. With continued development, Jet should make Walmart’s e-commerce efforts much smarter and more aligned with what customers really want.
2) Total supply chain mastery matters
The goal for both Amazon and Walmart is to create a seamless shopping experience that blends the best of an in-store experience with a powerful and convenient e-commerce platform. People want to have complete flexibility in how they shop.
Amazon and Walmart are in a dead heat right now when it comes to supply chain expertise. Walmart has perhaps the best physical distribution and retail network in the world, while Amazon is the clear leader in the online space. Right now, each company has something the other wants and needs to be the total package.
So here’s the billion-dollar question: Will Amazon be able to build a massive distribution network and physical stores that beat Walmart’s before Walmart can add major digital capabilities to its own supply chain and fuse it with its stores? Inventory positioning will be key in order to implement same-day delivery. That will require accurately predicting demand by geography and by customer segment.
I believe this battle will be won based on who can take new customer data and use it to build a supply chain that will help them serve consumers exactly how they want to be served. Despite recent moves, neither company is excelling over the other at this right now.
3) Claim new turf and dominate it
When the opponent is of equal strength and capability, one must change the environment to his or her advantage. It will be imperative for one of these two competitors to change the battlefield. Online has been won by Amazon, brick-and-mortar stores by Walmart. What could be the new major battleground?
Some potential war zones are mobile, augmented reality and virtual reality. But when it comes to Amazon and Walmart, it’s another tie on all fronts.
In recent years, neither has demonstrated the innovation they were once known for, leading the rest of the retail pack into new territory. More niche retailers like Lowe’s and Wayfair ngIf: ticker are moving rapidly into augmented and virtual reality, which will serve their customers nicely as their product offerings lend themselves to these visual aids. Walmart and Amazon also compete in these verticals, but if they can’t innovate like these smaller retailers, they’ll likely lose market share in the long term.
If either Amazon or Walmart is destined to come out on top, it has to come from a massive innovation push, a willingness to make mistakes and an effort to transform yet again.
By the way, these three points apply to all retailers and brands. So if you’re an investor, you should ask your portfolio companies what their strategies are in these three areas. If you are an executive of a retailer or brand, I’d do the same.
If you don’t get good answers, it just may be time to move on.
