Let’s step back and look at the slow, steady rise of these two 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.
Walmart Stores Inc. regarded by many investors as a slow-moving brick-and-mortar retailing behemoth, is proving to be no dinosaur. It’s posting faster e-commerce sales growth than Amazon.com Inc, projecting that its online sales will increase by up to 30% annually over the next few years, according to a detailed cover story in Barron’s.
The $3.3 billion acquisition last year of e-retailer Jet.com is transforming Wal-Mart into a much sleeker, faster moving competitor against Amazon, its nemesis. But the company is not stopping there. Wal-Mart is on a buying binge in the e-commerce field, and is adapting its business practices to increase its online competitiveness.
Wal-Mart’s progress makes it clear that the world’s largest retailer will remain a potent force even as Amazon expands its retail reach with the acquisition of grocer Whole Foods Market, putting the two companies in direct competition in yet another sector.
Wal-Mart’s E-Retail Strategy
The world’s largest retailer is set to post its best annual earnings growth in five years, and its stock could return 15% over the next year, per Barron’s. To accelerate its online expansion, Wal-Mart offers free two-day shipping on orders costing $35 or more, while promising consumers that returning online orders in its stores will take only 30 seconds, forcing Amazon to play catch-up.
In groceries, Wal-Mart already is the leading seller in the U.S., and derives over half its U.S. revenue from this category of goods. To increase its dominance, Wal-Mart offers a click-and-pickup grocery service, with its store employees speeding customers along by loading their cars. Analysts cited by Barron’s indicate that the company is winning additional market share in groceries at an accelerating clip.
Speedy Returns
A key to Wal-Mart’s e-commerce push is leveraging its extensive network of physical store locations. In particular, the company has a bold plan to slash the average time to process a return in its stores from five minutes to a mere 30 seconds.
The program, called Mobile Express Returns, was rolled out in November, initially covering items shipped by Walmart.com, but eventually also including merchandise bought in Wal-Mart stores by early 2018. Making returns of e-commerce orders quick, easy, and painless is important because about 30% of online purchases are returned, versus 9% of in-store buys.
First, customers will use a smartphone app to indicate that they will be coming into a Wal-Mart store to make a return. When in the store, they will enter a dedicated Mobile Express Return lane, scan a code from the smartphone, and get a refund credited to their payment account. These lanes, originally designed for prescription and money transfer service customers, are in place in all Wal-Mart stores and ready for their additional use in processing returns.
In some cases, such as with items that are damaged or which cannot be resold once opened, the customer may receive a refund without actually returning the product. This “keep it” option has the danger of being abused, but Wal-Mart indicates to CNBC that they have invested in technology that will reduce this risk.
Amazon Playing Catch-Up
Amazon is trying to play catch-up with Wal-Mart in extending its physical presence to make returns easier. After acquiring Whole Foods Market, Amazon has begun accepting returns at these locations. Also, Kohl’s Corp. (KSS) has agreed to process Amazon returns at about 80% of its department stores.
Meanwhile, Wal-Mart continues to forge ahead in online merchandising through smaller acquisitions in addition to Jet.com. These include, per Barron’s: Parcel, a same-day delivery service for groceries and general merchandise in New York City; Bonobos for upscale men’s clothing; ModCloth for trendy women’s clothing; Moosejaw for outdoor apparel; and ShoeBuy.com.
