Can Wal-Mart Stores Inc (NYSE:WMT) pose a serious threat to Amazon.com Inc (NASDAQ:AMZN) in the eCommerce segment?
In his seminal work "The Innovator's Dilemma: When New Technologies Cause Great Firms to Fail (1995)", Harvard Business School academic Clayton Christensen introduced the concept of "disruptive technologies". He later changed the term to "disruptive innovation". Disruptive innovation is a process whereby a smaller company with fewer resources is able to successfully challenge established incumbent businesses. And one come company which has exemplified this process is Amazon.com Inc (NASDAQ:AMZN).
First, it disrupted the publishing and bookstore business and then moved on to disrupting the larger retail industry. Amazon has been richly rewarded by this process of innovative disruption. As the company marks the twentieth year of its listing, Amazon stock has rallied from around $1.5 at the time of its listing in May 1997 to $958.49 dollars at yesterday's close, generating almost 63,799% return, outperforming Dow and NASDAQ by miles. And the stock is not done yet. The stock is on the way to $1000 mark and remains a good long-term buy. The company continues to innovate and disrupt different markets. According to reports, the company is now aiming at the pharmacy business.
One industry where Amazon's disruptive innovation has played havoc is the retail industry. Amazon.com Inc has changed the way consumers shop. It has become increasingly common to hear about superstores such as Sears (NASDAQ:SHLD) and Macy's (NYSE:M) closing many of their retail stores as shopping continues to shift online. According to a Bloomberg report, Credit Suisse analyst Christian Buss estimates that there will be 8,640 retail store closings in 2017, up 232% from roughly 2,000 in 2016. And many retailers like Borders, Circuit City, and The Sports Authority have shut shop. In fact, Bespoke Investment Group created a "Death By Amazon" index back in 2014 as a way to track the retail companies most affected by the rise of Amazon. The index recently hit 4 year low. As Amazon continues to disrupt different retail segments, more companies are likely to join the list of the vanquished.
Disrupting the disruptor.
While Amazon has continued to disrupt the retail industry, there are companies who are fighting back by aggressively investing in eCommerce business. In one of his later essays in 2009, Clayton Christensen remarked that:
"Disruptive attacks historically spelled the near-inevitable demise of the leading incumbent firms. But now that the theory is becoming better understood, a few of the leaders have begun turning the tables on the entrant attackers, looking at the simple end of their markets as important markets to defend. Indeed, they see in them significant growth opportunities."
One company which has been making aggressive moves in the eCommerce business to defend its turf, as well as drive revenue growth, is WWal-Mart Stores Inc (NYSE:WMT). The Bentonville, Arkansas-based company has been investing heavily in the online retail segment for a while now. Last year it acquired the fast-growing eCommerce company for over $3 billion and announced a partnership with jd.com in China. The company has been trying to match Amazon in both convinience and prices it offers to customers. It is offering free two-day delivery for orders above $33. The company has been working aggressively with its suppliers and various brands to reduce the cost of the products. Walmart wants to have the lowest price on 80 percent of its sales. And it's looking like the companies aggressive moves are paying of.
In its Q1 2017 earnings report which the company released yesterday, it revealed that sales of its U.S eCommerce segment grew by 63% YoY while gross merchandise volume grew by 69% YoY in the quarter. While the recent acquisitions of Moosejaw and ModCloth did play a role, the company said that a significant portion of growth was organic. Wal-Mart's global eCommerce sales have been accelerating over the past one year. Wal-Mart's e-commerce growth accelerated to 29% in Q4 from 20.6% in Q3, 11.8% in Q2 and 7% in Q1 2016.
Is Wal-Mart Stores a threat to Amazon.com Inc?
Giving the recent performance, many are now considering Wal-Mart as a real threat to Amazon Inc. "Mad Money" host Jim Crammer said on his show "You might think this comparison sounds crazy, even after the excellent quarter Wal-Mart just reported [on Thursday], but when you take a step back, it's pretty clear that these two companies have a lot more in common than you might expect,". Wal-Mart's online strategy is definitely paying off as it continues to accelerate growth in online sales. However, it's online business is still too small to pose threat to Amazon. Amazon's eCommerce business will continue to grow.
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