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Andrew Willis: After Walmart (WMT) disrupted physical retail decades ago with its larger physical presence and lower prices, Amazon (AMZN) began to capture market share in a new online arena. Fast forward to today, and it's a Battle Royale between the titans of physical and digital retail.
In response to Amazon's rise amidst the explosive growth of ecommerce, Walmart rolled out its own membership program, similar to Amazon Prime known as Walmart+. But investors looking for the latest developments to take sides in the battle should take stock of Walmart's enduring power among shoppers in the physical world. With its unrivalled scale and strong bargaining power with suppliers, we believe Walmart is the only American firm that can fully compete with Amazon's retail offering. And looking ahead, as the retail space evolves, Walmart may have an advantage.
As equity analyst Zain Akbari explains, in the end, it may be a menu of fulfillment options that shoppers require. Some may want to come and see a product; others may want to pick up or perhaps want a physical location if they have issues with the product. Despite Amazon being the partner of choice for vendors online, Walmart remains the top choice for manufacturers in terms of dollar sales overall, which could in turn perpetuate a cost advantage. The company is also redirecting funds to develop the right blend of delivery and in-store experiences for tomorrow's omnichannel customers.
Today, we estimate there are still around 50 million U.S. households who don't have an Amazon Prime account, which makes a potential market for Walmart+. And don't forget about Canada when it gets here of course.
For Morningstar, I'm Andrew Willis.
Bulls Say
- As America’s largest retailer, Walmart should be able to capitalize on its store network and digital investments to deliver a compelling omnichannel retail experience that no traditional rival can match.
- Walmart boasts purchasing leverage that allows it to minimize procurement costs and to keep prices low and traffic high.
- Inflation and economic uncertainty have lifted near-term sales, with Walmart’s historic steadiness in recessions and reputation as a value leader suggesting it will be able to navigate a turbulent economy.
Bears Say
- Competition is fierce throughout retail, and Walmart will have to innovate to keep pace not only with Amazon but also physical retailers that are increasingly investing in omnichannel capabilities.
- Amazon has a sizable lead in its marketplace and membership offerings; while Walmart should have room to build its offering, we believe its third-party seller platform is well behind, and its Walmart+ will take time to reach its potential.
- Sam’s Club lags well behind Costco in sales, profitability, and (we suspect) member attachment; the gulf will likely persist.
Editor's Note: All images are courtesy unsplash.com and AP Images.