AMAZON AND WALMART ON COLLISON COURSE

Financial Performance
Amazon Walmart

• Revenue – USD 177.87 Bn • Revenue – USD 500.34 Bn

• Operating Profit – USD 4.1 Bn • Operating Profit – USD20.44 Bn

• Market Capitalization – USD 700 Bn • Market Capitalization – USD 260 Bn

• Sales Growth – 30% • Sales Growth – 0.6%

• Market Value/Earnings - 25 • Market Value/Earnings – 12.5

Where is the future for Offline Retailing ?
Where is the future for Offline Retailing ?
• Total retail industry size
• Worldwide: USD 22.6 Trillion in 2017
• US: USD 5 Trillion in 2017

• Total ecommerce
• Worldwide: USD 2.3 Trillion in 2017 (10.2%)
• US: USD 0.46 Trillion in 2017 (9%)
• Projected to grow to 14% in 2021

• Retailing industry is predominantly offline.

• While Walmart faces online challenge, Amazon faces offline challenge

How Amazon Retail is doing ?
How Amazon Retail is doing ?
All numbers in Million USD USA International Total
Total Sales 120,486 57,380 177,866
AWS 14,376 3,083 17,459
Non AWS Sales 106,110 54,297 160,407
Physical Store (Whole Foods) 5,624 174 5,798
Non AWS, Whole Foods Sales 100,486 54,123 154,609
(65%) (35%) (100%)

Online (65/35 Split between US and International) 70,430 37,924 108,354

Third Party 20,723 11,158 31,881
Subscription 6,319 3,402 9,721
Other 3,024 1,629 4,653
How Amazon Retail is doing ?
All numbers in Million USA Internati Total • The retail sales is around USD 70-75 Bn
USD onal
Total Sales 120,486 57,380 177,866 • AWS Profit is 4.3Bn while Amazon profit is 4.1Bn
AWS 14,376 3,083 17,459
• Can safely assume that Third party, subscription and others
Non AWS Sales 106,110 54,297 160,407
are profitable
Physical Store (Whole 5,624 174 5,798
Foods)
• Exhibit 15: Third Party commission is $13Bn+
Non AWS, Whole 100,486 54,123 154,609
Foods Sales (65%) (35%) (100%)

Online (65/35 Split 70,430 37,924 108,354 • Hence Amazon retail is making losses in the range of $10Bn
between US and
International)
Third Party 20,723 11,158 31,881

Subscription 6,319 3,402 9,721

Other 3,024 1,629 4,653

How Amazon Retail is doing ?
2002 2007 2012 2017
In Million USD Walmart Amazon Walmart Amazon Walmart Amazon Walmart Amazon

Net Sales 226,479 3,933 374,526 14,835 466,114 61,093 495,761 177,866

No. of Employees 1,500,000 7,500 2,000,000 17,000 2,200,000 88,400 2,300,000 560,000

Inventory 25,056 202 35,180 1,200 43,803 6,031 43,783 16,047

Total Assets 94,685 1,990 163,514 6,485 203,105 32,555 204,522 131,310

Sales/Employee 0.15 0.52 0.19 0.87 0.21 0.69 0.22 0.32

Sales/Inventory 9.04 19.47 10.65 12.36 10.64 10.13 11.32 11.08

Sales/Total Assets 2.39 1.98 2.29 2.29 2.29 1.88 2.42 1.35

Fulfilment Costs/Sales (%) 10.0 8.7 10.5 14.2

Shipping Cost/Sales (%) 10.3 2.9 4.7 12.2

Fulfilment+Shipping 20.3 11.6 15.2 26.4

 How Amazon Retail is doing ?
2002 2007 2012 2017

In Million USD Walmart Amazo Walmart Amazo Walmart Amazon Walmart Amazon
n n

Net Sales 226,479 3,933 374,526 14,835 466,114 61,093 495,761 177,866

No. of Employees 1,500,000 7,500 2,000,000 17,000 2,200,000 88,400 2,300,000 560,000

Inventory 25,056 202 35,180 1,200 43,803 6,031 43,783 16,047

Total Assets 94,685 1,990 163,514 6,485 203,105 32,555 204,522 131,310

Sales/Employee 0.15 0.52 0.19 0.87 0.21 0.69 0.22 0.32 Walmart has a very high return on inventory?
Sales/Inventory 9.04 19.47 10.65 12.36 10.64 10.13 11.32 11.08
Walmart has more inventory?
Sales/Total Assets 2.39 1.98 2.29 2.29 2.29 1.88 2.42 1.35
Walmart is more capital intensive?

Fulfilment Costs/Sales 10.0 8.7 10.5 14.2

(%)

Shipping Cost/Sales (%) 10.3 2.9 4.7 12.2

Fulfilment+Shipping 20.3 11.6 15.2 26.4

 How Amazon Retail is doing ?
2002 2007 2012 2017

In Million USD Walmart Amazo Walmart Amazo Walmart Amazon Walmart Amazon
n n

Net Sales 226,479 3,933 374,526 14,835 466,114 61,093 495,761 177,866

No. of Employees 1,500,000 7,500 2,000,000 17,000 2,200,000 88,400 2,300,000 560,000

Inventory 25,056 202 35,180 1,200 43,803 6,031 43,783 16,047

Total Assets 94,685 1,990 163,514 6,485 203,105 32,555 204,522 131,310

Sales/Employee 0.15 0.52 0.19 0.87 0.21 0.69 0.22 0.32 Walmart has a very high return on inventory?
Sales/Inventory 9.04 19.47 10.65 12.36 10.64 10.13 11.32 11.08
Walmart has more inventory?
Sales/Total Assets 2.39 1.98 2.29 2.29 2.29 1.88 2.42 1.35
Walmart is more capital intensive?

Fulfilment Costs/Sales 10.0 8.7 10.5 14.2

(%)

Shipping Cost/Sales (%) 10.3 2.9 4.7 12.2

Fulfilment+Shipping 20.3 11.6 15.2 26.4

Amazon – Who do they Serve ?
 Amazon – Demographic Segmentation

Amazon Walmart Supercenters

Income Level About 12% higher income level Relatively lower income levels.
$62,900 for regulars Average income of $56,482
$69,300 for prime members

Age 19 – 44 years old: 53% Above 45 years old: About 60%

Average Age: 37 years Average Age: 51 years

Source: 1. https://www.businessinsider.com.au/walmart-shopper-demographics-2016-10
2. https://www.cnbc.com/2015/12/03/amazon-vs-target-these-shoppers-skew-wealthier.html
3. https://www.cnbc.com/2017/04/12/nearly-every-american-spent-money-at-wal-mart-last-year.html
Amazon – What about needs-based segmentation ?

Amazon Walmart Supercenters

Income Level About 12% higher income level Relatively lower income levels.
$62,900 for regulars Average income of $56,482
$69,300 for prime members

Age 19 – 44 years old: 53% Above 45 years old: About 60%

Average Age: 37 years Average Age: 51 years

In 2016, 95% of all US consumers had shopped at Walmart store, while 42% had
shopped at Amazon.

This suggests that 37 – 42% of consumers have experience in shopping at both Amazon
and Walmart.
What is it that Amazon and Walmart offers to their
customers ?
What is it that Amazon and Walmart offers to their
customers ?
Factors Amazon Walmart

Convenience of ordering from home (specially for tech-savvy people) Amazon.com Walmart.com
Convenience of reaching a store Amazon Go Store Neighborhood Store
Convenience of getting product delivered at home Last-mile delivery Customer pickup
Convenience in checkout One-click tech Self check-out
Lower price High shipping cost Competitive
More product variety (Breadth) High Low
Product availability (Depth) High Low
Returnability Low High
Order tracking Low High
Response time High Low
Product search Low Scan and go feature
Discounts Frequent EDLP
What is the difference in online penetration between
books, apparel and grocery ?
• Product standardization

• New product introduction

• Ease of delivery (packaging issues and in-person delivery)

• Product Information

• Returns

• Quality assessments

• Shipping and fulfilment cost as a percentage of order value

Challenges that Amazon faces in entering the grocery segment?
Challenges that Amazon faces in entering the grocery segment?

• Complexities of delivering groceries and high returns in apparel.

• Last mile connectivity is very critical.

• Ambient temperature products
• Chilled products
• Frozen products

• Economics of delivering grocery favors offline retail (low in value high in

weight and volume).

• The touch and feel limitations of apparel restricts buying to only

standardised accessories.
What are initiatives taken by Amazon?
What are initiatives taken by Amazon? – Brick and mortar presence

• Acquisition of Whole Foods.

• Operating 13 bookstores.

• Amazon Go.

• Campus pick-up points.

• Amazon fresh pick-up points – only two in Seattle in 2017.

What are initiatives taken by Amazon? – Brick and mortar presence

• Offering lockers for pickup and returns.

• Partnership with Kohls.

• 40 miniature retail storefronts.

• Launch of treasure trucks.

What are initiatives taken by Amazon? – Enhance Online Experience

• Amazon Prime

• Private labels

• Fashion editors to develop shopping guides.

What are initiatives taken by Walmart?
• Capital Expenditure (Exhibit 13) Improve Online Service – Click and collect service

In-store experience • Leverage existing infrastructure

• Improved physical experience • Enhance cross-selling opportunities

• Enhanced technology • Offer lower prices as shipping costs are not there

• Customer experience

Improve Online Service – Click and deliver service

• Increase online inventory

• Improving marketplace options

• Targeting new customer segments online

• Improving delivery options

‘Store picking’ model Vs. ‘warehouse picking’ model
‘Store picking’ model Vs. ‘warehouse picking’ model
Store Warehouse
Picking • Automated
• Picking efficiency
• Fewer error

Delivery • Shorter routes • Truck optimization

• Faster delivery times • Longer delivery times

Collection & • Offer click & collect • Cannot offer click & collect
Returns • Returns to store possible • Need to develop dedicated return process

Scalability • Can start small • Need to scale to justify

• Limited scalability • Greater control over process

Investments & • No capital investment • Substantial capital

Costs • Higher operating costs • Lower operating costs at scale