When it comes to classic rivalries, few are as epic and well known in the business world as Walmart (NYSE: WMT) and Amazon (NASDAQ: AMZN). Although each has a business model grounded in an entirely different world, they’ve both grown and branched into each other’s domains in a bid to be the biggest, fastest, and cheapest on the planet.
Walmart and Amazon: Clash of the titans
Walmart, a traditionally brick and mortar retailer, found its feet in e-commerce as a way of protecting the chunks of flesh Amazon was carving from its bottom line. This was largely due to the efforts of CEO Doug McMillon, who took the reins in 2014. In response, Amazon, originally a digital-only retailer, started putting down roots in the real world with various projects, including the acquisition of Whole Foods in 2017. From there, it’s been a sort of cold war between the two retail giants in both the physical and digital worlds.
Although Walmart has been the largest retailer in the United States throughout the ongoing rivalry with Amazon, it may soon be dethroned. A new study from Edge by Ascential looks at the near future of retailers, and it’s not all coming up roses for Sam Walton’s overgrown Arkansas-native five-and-dime store. In fact, according to Edge by Ascential’s research arm, Amazon is poised to experience a compound annual growth rate (CAGR) of 14% between 2020 and 2025. That puts Amazon’s future gross merchandise value at a whopping $631.6 billion.
Walmart, on the other hand, is anticipated to experience a mere 3.9% CAGR during the same time period, leaving its projected 2025 gross merchandise value at just $523.3 billion. This is despite massive gains during the pandemic for the retail giant. In February, Walmart reported fourth-quarter increases of 69% in U.S. e-commerce sales and 8.6% in comp sales, for example, which helped increase total revenues by $10.4 billion to $152.1 billion for the period.
Amazon’s strength is in innovation
Walmart has long held the title of retail titan because it essentially invented the concept of big-box retailing. However, having stayed within the confines of that mold hasn’t helped it as e-commerce has been on the rise, nor has it attempted to diversify in other ways that would support its core business.
This is where Amazon and Walmart differ wildly. Amazon has been making strategic investments over the longer term to help improve access to its products, including creating its own delivery fleet. This proved quite useful during the pandemic, when other last-mile carriers were overwhelmed by shipments from retailers like Walmart.
Although Amazon did utilize these last-mile shippers in areas where it wasn’t yet embedded, a recent earnings call revealed that Amazon made it a priority to further expand fulfillment and logistics capabilities by 50% year over year in 2020, with many of these facilities going online during the fourth quarter. This increased capacity helped Amazon maintain high levels of customer satisfaction and encouraged even more sales.
This is just one example of innovations happening all the time under the Amazon umbrella. Other experimental tools -- like Amazon One, a touchless terminal using palm prints to help facilitate payments and allow workers to enter the workplace, or even make access to public events faster and safer, and Project Kuiper, which will provide broadband connectivity to unserved or underserved areas of the globe -- support Amazon’s retail activities but aren’t retail activities themselves. This skews the picture of what it means to be bigger and better in retail today.
The Millionacres bottom line: Walmart and Amazon are both good bets
Walmart and Amazon may be constantly weighed against one another as retailers, but their business models are wildly different, as well as their overall visions for the future. Comparing them in this way seems very counterproductive for general investors, since the type of investor interested in working with or investing in Walmart is going to have a very different idea of risk than the one who is interested in buying into Amazon.
On the surface, their retail operations may be passably similar, taking up huge amounts of real estate for storing products and performing order fulfillment, but that’s pretty much where the similarities end. Walmart is the past, that’s absolutely true, but it’s a model that continues to work for many customers who aren’t ready to totally give up their lives in the real world for the potential of the digital one.
Amazon, on the other hand, is a lot more than just a retailer, with remarkable research and development that is forging the future of retail and changing it forever. It’s not just selling you a new phone charger, it’s also selling you the shipment service, the internet access to make the purchase, devices upon which you can buy products, and so forth. Because of this wider spread, Amazon is practically destined to outpace Walmart, but it’s also going to be outspending the more traditional retailer as it invests in the future.
Earning the title of "largest retailer" isn’t much of an accomplishment when longer-term costs aren’t included in the figure. And with Amazon, those are potentially very difficult to predict, since things like satellites can be pretty expensive, delicate, and prone to massive risk of loss. It’s far from a traditional retailer, which means it’s not exactly cut and dried to determine what costs will come in the future and where the line between retail and innovation lies.
Investors are wise to continue to invest in both retailers, as they both continue to be exceptionally strong bets in their different areas. Walmart is more than its lackluster e-commerce arm, just like Amazon is more than its massive warehouse square footage.