Is, Inc. Under Threat From WalMart?

  • Amazon plans to build physical stores to complement and aid its e-commerce business.
  • At the same time, Walmart is aggressively trying to grow sales through the online channel.
  • As the lines between the two blur, Is Walmart's online push a threat to Amazon's online dominance?

The Economist recently published an investment case comparing, Inc (NSDQ:AMZN), the behemoth in the internet retail space with Walmart (NYSE:WMT), the largest retailer in the world. The opening lines read: "Over the next 10 years Walmart stock will outperform Amazon." An interesting statement, especially considering the stock price movements of the two companies over the last decade.

AMZN stock chart

Source: Amazon stock price chart by

While Amazon stock has skyrocketed over the last 10 years, Walmart stock has essentially moved sideways, with negligible returns to shareholders (excluding the dividend yield which is currently around 2%). So, Does The Economist's statement hold any water? Is Walmart stock finally set to move out of the 'Walmart decade'? Is Walmart a serious threat to Amazon's dominance in the online space?

Amazon building out brick and mortar stores

In a news report from early February this year, Jeff Bezos, CEO, was quoted as saying that Amazon intends to build out hundreds of physical stores to aid its online sales. The advantages of physical stores are many.

Firstly, Amazon is a giant in the e-commerce space, which in itself is a small part of the total global retail sales. Per an eMarketer report, e-commerce market will be worth $2.5 trillion in 2018, making up 8.8% of the total retail sales. Amazon could well be looking at tapping into the over 90% of retail sales coming from traditional retail channels.

Secondly, physical stores could provide Amazon customers with the physical shopping experience e-commerce currently lacks. A combination of lowest prices plus an ability to physically inspect a product before pick-up could provide Amazon an edge it has lacked so far.

Thirdly, the physical stores can also act as pick-up options for orders placed online, providing customers with the ability to schedule delivery for orders placed online. Amazon could benefit here from lowered delivery and shipping costs.

Walmart going online

Even as Amazon is contemplating building out physical stores, Walmart is focussed on getting into the online game while also leveraging its huge number of physical stores. The company closed fiscal 2016 (ending Jan 30, 2016) with online sales of $13.7B, up 12% YoY. This compares against online sales of $99.1B for Amazon in FY 2015 (December end).

In an attempt to take a greater share of the online sales market, Walmart seems to be making multiple moves. In what could be an inorganic path to grow its online sales, WalMart was recently linked to, as a potential suitor to buy the privately held e-commerce company. Also, WalMart has been actively investing in tech in order to improve the collaboration between its world-class in-store tech and its e-commerce focused technology.

Is Walmart a threat to Amazon?

As the lines between online and offline retail blur and the business models of traditional retailers and e-commerce players converge, Is Walmart a threat to Amazon?  WalMart's online sales are only a fraction of Amazon's online retail sales, implying a good growth potential. However, a comparison of the growth rates in online sales for both the companies reveals that it might not be as easy for the Bentonville-based company.

Amazon and Walmart Online Sales Growth

Source: Based on respective company filings

Amazon is not just larger than WalMart, but is also growing more rapidly, inspite of the bigger revenue base. While Amazon continues to grow at  rates around 20% YoY, Walmart's online sales growth seems to have fizzled out. The chart reveals that the giant retailer might not be doing just enough to be a meaningful threat to Amazon. A comment from WalMart CEO Doug McMillon from the latest earnings call sums it up quite well: “Growth here is too slow.” For now, Amazon seems to be the clear winner here and WalMart is far from being a meaningful threat to its online dominance.

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Neither Amigobulls, nor any members of its staff hold positions in any of the stocks discussed in this post. The author may not be a certified/registered investment advisor, and the opinions expressed should not be treated as investment advice. Buying and selling of securities carries the risk of monetary losses. Readers/Viewers are advised to carry out their own due diligence and consult their investment advisors before making any investment decisions. Neither Amigobulls, nor the author have any business relationship with any of the companies covered in this post.

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