It’s been a long time since Walmart Inc. (WMT) has been the underdog in every fight, but recently the retail giant split from international markets to focus on a fight with a much bigger rival at Amazon.com, Inc. (AMZN) on a battlefield where the internet giant has made a name for itself. We’re going to look at Walmart’s recent moves and discuss why the retail giant is going all-in E-commerce.
The central theses
- Walmart and Amazon have done well during the pandemic, although the market views them differently.
- Walmart has pulled out of some international markets and invested heavily in its own e-commerce operations.
- Amazon and Walmart bring very different strengths to the e-commerce battle, but it will be a long battle.
Walmart’s sale of global assets
Walmart recently sold most of its stake in Seiyu GK, a Tokyo-based supermarket chain with 329 stores. Walmart will continue to own 15%, but KKR & Co. Inc. (KKR) has the majority with a stake of 65% and Rakuten, Inc. based in Japan (RKUNY) takes up the remaining 20%. This is part of a larger divestment of global investments for Walmart in the past two years, as Walmart sold stakes in the UK and Brazil and recently announced the sale of retail stores in Argentina.
Walmart continues to have physical global assets in Canada, Central America, China and Africa. Perhaps, however, the global capital that is most indicative of its future strategy is this $ 16 billion stake in Flipkart in India. Walmart is new Results report confirmed this increased focus on e-commerce as an important pillar for the retailer’s future growth.
A platform against a seller
All in all, Walmart had a decent pandemic. Pedestrian traffic The number of customers in the US has decreased, which means shoppers are making fewer visits, but sales per visit are increasing. The strength in the physical locations lies in a 79% increase in the retail giant’s e-commerce sales. Walmart has also introduced new features to its e-commerce operations, including a membership program that includes free delivery for an annual fee of $ 98 and a third-party marketplace.
These steps should sound familiar as they are key elements of Amazon’s ecommerce business. Amazon and Walmart are already competing with each other, and the competition seems to be preparing to get even more direct as Amazon’s announcement to buy pharmacies hits another part of Walmart Brick and mortar Operations.
A matchup of the giants
One of the most fascinating things about these two giants colliding is how they came to the same place from different paths. Walmart was primarily a retailer who built its model on strategic physical operations, elite sales, and the size it took to squeeze its suppliers’ margins. Now an e-commerce platform is to be set up that complements the advantages as a seller of goods.
On the flip side, Amazon was initially an e-commerce platform that developed a distributed delivery and delivery network through trial and error and tons of user data. Now Amazon has grown into a retailer on its own platform selling goods produced by Amazon that compete with some of its platform sellers.
Can Walmart make it a real fight?
While Walmart and Amazon are in competition with each other, look no further P / E ratios and Market capitalization to see how differently the market judges them. Amazon has a market cap of $ 1.5 trillion and a P / E north of 90. Walmart has a market cap of $ 4.25 billion and a P / E of just over 20. Investors expect Walmart to be profitable every year While the market is doing this, having long-seen profits on Amazon as simply beautiful. This divide affects the investment thesis behind picking a winner between Amazon and Walmart, but there is evidence that Walmart may struggle in e-commerce.
Walmart’s main strength is the strength that Walmart has always had as a retailer – a highly efficient distribution center. Walmart’s presence in North America offers consumers the option of door delivery or online collection at one of the many nearby stores. The retail locations that form the backbone of Walmart’s in-person sales also function as distribution hubs for e-commerce sales. This is a key advantage the company enjoys over Amazon, which depends on warehousing and warehousing Last mile delivery.
In addition, Walmart’s Economies of scale Between physical locations and e-commerce, this can mean that consumer staples sales continue to generate strong margins while also being more price competitive than anything Amazon can achieve with its diverse supply / seller market.
The bottom line
Walmart’s withdrawal from some global markets was seen as a necessary but painful decision to focus on fewer markets with better growth prospects. The pandemic may have played a role in speeding up some of these exits, as e-commerce was critical to the US’s core businesses.
Walmart’s strong earnings update and underlying e-commerce growth were indifferent to the market – likely because Walmart saw its share price soar earlier this year. However, it is important for investors to know that Walmart has a real chance to take a growing share of the e-commerce market.