Imagine for a moment you own some Amazon stock. As of last week, you would have ownership in a company worth close to $247 billion dollars. You would have ownership in a company that operates in the rarefied space of e-commerce, cloud computing, and information technology. And at the end of the day, you would have ownership in a company that makes money by selling you stuff every time you sit down at your computer.
And even if you haven’t bought something from Amazon this weekend, chances are, you’ve spent time on a website that runs off of Amazon’s web services: maybe you binged on your favorite Netflix series, maybe you lurked Reddit, pinned some recipes on Pinterest, or maybe you booked a trip on Expedia.The point is, in some way or another, you probably bumped into Amazon this weekend.The $247 billion dollars of worth puts Amazon ahead of Wal-Mart, worth ~$236 billion, as the world’s biggest retailer.Here’s a look at the growth of Amazon distribution centers (DC) across the US. Amazon DC fulfill all orders made online.
Note: I could not find years for all DCs, so those are “null” in the dataset. I will update this when I find the years.
Amazon’s Competitive Edge
With just 89 distribution centers, Amazon covers 95% of the major metropolitan areas of the US. Meaning, when you want your iPhone cover, your book, your DVD, your computer game, you will get it. And fast. This is where Amazon has really taken Wal-Mart by storm: efficient outbound fulfillment. On Thursday, you want an iPhone cover. On Saturday, you have it. Without getting in your car, and without stepping a toe inside Wal-Mart. On the flipside, Wal-Mart has lost your purchase for the case (if they stocked it), and temporarily, all additional purchases you would have made had you gone to the store.Whereas most competitors take on charges from suppliers for restocks/new items for their multiple-channels, Amazon takes a different approach. Amazon owns a freight network responsible for picking up close to 90% of stock from suppliers. In addition to saving on shipping charges for inbound, these freighters can be repurposed for outbound shipping if channels close or outbound shipments need to increase. These savings have been used partially to fuel the growth we’ve seen over the past decade or so.
Amazon’s Next Battleground
Amazon has already transformed commerce in the digital realm. The real question is: what will follow? Competing for our furniture purchases, clothing purchases, home decor purchases, and office purchases will require yet another transformation. My partner and I still make most of these types of purchases in store, even though we have occasionally purchased clothes directly from online retailers. But if we stand on our tiptoes, as Amazon execs undoubtedly already have, we will realize that there are billions of additional dollars in grocery and health and beauty/self-care products that could be extracted. And yet, these purchases remain firmly rooted in the store.If you never had to step foot in Wal-Mart, would you? If Amazon delivered your Dawn soap, shampoo, conditioner, and light bulbs right along side your Cheerios and bananas, would you be alright with that? At the end of the day, do you care where your Cheerios came from, everything else held equal? As long as you have them to feed your child before school Monday morning? Amazon is betting on it.
Wal-Mart’s massive, distributed global footprint means they have the ability to meet e-commerce requirements that will enable it to complete with Amazon on a global scale. Wal-Mart has more than 120 distribution centers employing close to 100,000 staff across the US. Combining distribution centers and retail space, this equates to ~838 million square feet of developed infrastructure.(Aside: Amazon purchased Kiva Systems in March 2012 and now employs a team of robots at distribution centers in addition to real humans. One estimate says ~15,000 robots work to lift, move, and organize inventory in Amazon distribution centers.)Wal-Mart could theoretically leverage this space to fulfill online orders similarly to Amazon. (This is not to say this isn’t already happening now (it is), but to highlight the potential for growth in this area available to Wal-Mart today due to its 50+ years of retail history.)
Who will come out on top?
In some ways, the Wal-Mart/Amazon comparison seems ill-concieved, maybe even unfair. Or, maybe just incomplete. Not quite apples and oranges, but sort of. Arriving at an appropriate valuation for either company requires much more than a value for market cap. Wal-Mart was founded in 1962. Amazon in 1994. Wal-Mart’s brand, in the eyes of many, has become virtually synonymous with discount retailing. For generations, Wal-Mart shopping has been part of the weekly lives of the general populace. Sam Walton built buildings. Jeff Bezos built a website.The ‘rise of the interwebz’ has ushered in a new era of retail that 1) made Amazon’s success possible, and 2) changed the retailing requirements for ‘traditional’ retailers. As consumers transition more of their in-store purchases to on-line purchases (Amazon), big box retailers like Wal-Mart will continue todevelop and deploy e-commerce channels to recapture some of these lost sales. Importantly, these traditional retailers also have local stores that could be used as micro-distribution centers for online-order/in-store pick-up. In 2014, Amazon did a better job on the web than Wal-Mart, but the question being asked is whether this spells the end of Wal-Mart. Will Wal-Mart be able to complete for online supremacy? They are. Will they come out ahead? Only time will tell.
Walmart DC Data: http://www.mwpvl.com/html/walmart.html
Amazon DC Data: http://www.amazonfulfillmentcareers.com/amazon-fulfillment/locations/
Wal-Mart Stores Data: http://www.econ.umn.edu/~holmes/
Featured image: http://www.business2community.com/online-marketing/online-selling-and-a-user-friendly-shopping-cart-0584680