- Walmart is closing down Walmart Express, which has served small, distinct communities.
- Amazon is struggling to maintain its top-line growth by penetrating new non-core businesses.
- Expanding the Amazon Fresh service to replace the Walmart Express stores is a low hanging fruit for Amazon.
Last month, giant retailer Walmart (NYSE:WMT) announced its plans to close 154 stores in the U.S. as part of a broad plan to re-evaluate the stores' profitability worldwide in each format, taking into account local competition and the stores' locations and distance from other Walmart stores. This move attracted a lot of criticism since most of the stores to be closed are small Walmart Express stores in distant locations where Walmart might be the only retailer in town. This move supports Walmart's strategy to close the small Walmart Express stores and focus on big-sized supercenters, neighborhood market stores, and its e-commerce business.
In its previous earnings release in November 2015, Walmart reported mixed results that slightly missed on revenues and delivered a beat on EPS. However, the YoY e-commerce sales growth and reaffirming guidance drove the market to believe that the continuous drop in Walmart stock price that started in November 2014 might hit a bottom. Since November 2015, Walmart stock price has outperformed the S&P 500 and NASDAQ, as shown in the chart below, and the recent strategic move fueled another rally in stock price.
At the same time, the giant online retailer Amazon (NASDAQ:AMZN) issued disappointing Q4 2015 results that triggered a sharp double-digit decline in Amazon stock. The disappointment was not over the growth in AWS or its emerging transportation business but related to the core e-commerce business, and that was a severe blow to the company.
Since its inception, Amazon has been focused primarily on growing its top-line revenues by strengthening its core e-commerce business and penetrating new markets that could support the growth. While Amazon is experimenting with hardware products, penetrating the freight transportation market and even opening new brick-and-mortar bookstores, the company could fill the void created in many small towns by the closings of Walmart Express and leverage some of its existing services to increase its sales.
Amazon has some services that, once put together, could serve as a comprehensive replacement to the Walmart Express stores. The two leading services that Amazon should expand to support this move is Amazon Prime and Amazon Fresh—this will enable Amazon to offer fresh grocery orders in more locations than what is currently supported. This initiative will support some of the local businesses and allow Amazon to expand the business successfully to communities with real demand for such services. Amazon Fresh could offer a very wide variety of products that could provide the same experience that consumers had with physical Walmart stores.
On top of groceries, Amazon could offer baby and kids goods via diapers.com, afterschool.com and Look.com, pet goods via Wag.com, shoes and clothing via Zappos and EastDane and so on. Of course, sending these goods via Amazon Prime to all these distinct locations might not be very economical for Amazon, so the online giant should copy the Amazon Fresh model into fashion and other items to deliver a fully comprehensive solution for consumers while supporting local businesses. This non-food version of fresh could offer unique discounts to other Amazon sites for customers order through Amazon Fresh food/non-food.
This low-investment initiative could turn the Walmart Express closure to a real business opportunity for Amazon that could strengthen its positioning with local merchants and consumers. Moreover, Amazon could use this initiative to push other initiatives into these communities like Amazon Payments and Amazon Register. This type of low-hanging fruit could help drive Amazon’s core business growth up and support adjacent businesses.