Despite the inroads made by Amazon during the first 23 years of its existence, Wal-Mart is still the granddaddy of retailers by a wide margin.
But the C-suite at Wal-Mart is well aware of how Amazon CEO Jeff Bezos and his company are disrupting the traditional retailing model and threatening Wal-Mart’s leadership position in the long-term.
Doug McMillon, Wal-Mart’s CEO since 2014, is determined to narrow the gap between Wal-Mart’s third place ranking in worldwide e-commerce and Amazon’s lead as the No. 1 e-commerce site in the world.
McMillon’s first big step was to purchase Jet.com for $3.3 billion in 2016 and put Jet’s chief executive, Marc Lore, in charge of Wal-Mart’s overall e-commerce business.
Lore quickly introduced changes, such as free two-day shipping and expanding Wal-Mart’s online assortment from 8 million items at the start of 2016 to more than 22 million items by March 2017.
(That’s still just a mere fraction of the more than 300 million items Amazon has available. In fact, Wal-Mart probably only stocks in total about two-thirds of Amazon’s inventory — or approx. 200 million items — across all of its retail formats.)
At the same time, Wal-Mart said it would combine its own buying for products sold at its stores with purchases it makes for its website. Until recently, the store and online buying teams of the world’s largest retailer had operated independently.
This strategy is intended to stamp out duplicate efforts. Wal-Mart has committed itself to making the buying process more efficient for itself and its vendors, and improve coordination between its buying teams.
The company also intends to apply its brick-and-mortar expertise in securing the lowest possible prices to its e-commerce business. The move will help Wal-Mart make items at its nearly 4,600 U.S. stores available online. Many store suppliers still don’t sell online because of low sales volumes.
Just a few months after Wal-Mart unveiled its new strategy, Amazon made a bold and far more aggressive move — they purchased Whole Foods for $13.4 billion. This will take Amazon’s physical presence to a new level as the grocery chain has more than 460 stores in the United States, Canada and Britain and sales of $16 billion in 2016.
Wal-Mart shot back almost immediately. On June 17, a day after the announcement of the Amazon/Whole Foods acquisition, Wal-Mart made its deal to acquire the apparel retailer Bonobos for $310 million public. Although this transaction may be much smaller in terms of size, it’s just as significant strategically to Wal-Mart as Amazon’s move is to them.
Bonobos may have built its brand on the back of a successful online business, but it also has a chain of equally successful retail stores. Thus, the acquisition brings a unique capability to Wal-Mart — best practices in managing two very distinct channels in tandem, not separately as has been the case for 99% of all retailers to date.
There’s another interesting side-note here. Bonobos addresses a higher end and pricier segment — in this case, menswear — than Wal-Mart has done in the past.
One could even say this acquisition potentially flies in the face of the company’s mission statement: “Saving people money so they can live better.”
But a better way of looking at this is that in any segment Wal-Mart sells to, whether low, middle or high-end, it will always try to be the lowest priced.
Amazon has a culture that is innovative and pioneering. They can hire the best and brightest technology experts, engineers, lawyers and business people in the world to make things happen. The company is also willing to fight to succeed, occasionally resorting to aggressive, no-holds-barred tactics. Not much different than most highly successful, technology-driven businesses.
Wal-Mart’s culture is the polar-opposite. Although it has always had an aggressive streak, Wal-Mart has built a folksy, polite, down-to-earth, very middle-America and conservative culture.
McMillon is working hard to change that culture to take on the challenge, but it’s a major undertaking for a company of that size and with such a legacy. Whatever shifts Amazon will have to make going forward, undoubtedly its pioneering culture will prove to be more adaptive and agile than Wal-Mart’s.
That innovative spirit means, for example, that if the consumer doesn’t see value from the current way Amazon does business, then Bezos and Co. will throw out what’s not working and develop something better.
They have no interest in maintaining any technology or system that doesn’t support their core mission of being the most consumer-centric company in the world. Wal-Mart is anything but disruptive and their tactics are baby-steps in comparison with the boldness with which Amazon is creating its future.
The fight between Amazon and Wal-Mart may have kicked into high gear but there are even bigger things yet to come. With revenues of $136 billion in 2016, Amazon still has a lot of mergers and other big, bold moves before the company comes anywhere near Wal-Mart’s 2016 revenue of $483 billion.
But given Amazon’s culture and the company’s average annual growth rate of 17% over the past five years compared to Wal-Mart’s paltry 1%, Bezos and team might very handily achieve that goal by 2027.