Company / division: Walmart
Walmart is buying New York same-day delivery specialist Parcel, which currently performs that function for a variety of smaller e-commerce companies and will continue to do so alongside becoming Walmart’s in-house vehicle for doing so. This acquisition echoes that made a while back by Target, when it bought Grand Junction, another company specializing in delivery in New York City. New York continues to be something of a unique market – I’m visiting this week, and have seen ads for almost nothing but delivery services on the subway trains I’ve been on, while the products being delivered range from groceries to food from restaurants to other essentials. The population and residential density in NYC is unmatched in pretty much any other locale in the US, and so it lends itself uniquely well to good economics for rapid delivery. None of this feels particularly scalable across the US, but as Amazon has long demonstrated, that’s not to say it doesn’t make for a multi-tiered approach to delivery in various places across the country, with ever faster deliveries in the biggest and most densely populated urban areas.
Facebook has signed up the biggest private company in the world – Walmart – as a customer for its Workplace enterprise product, something of a coup as it competes against other products which have been in the market for far longer. Of course, many of Walmart’s employees work in stores and not at desks and so likely will never need accounts on the corporate social network, so though its overall size is dazzling, the size of the deployment is likely to be rather smaller. But it appears that Facebook has been quietly making good progress signing up other businesses of different sizes including some big names like Telenor (Norway’s incumbent telecoms operator) and Starbucks. All of this is indicative of Facebook’s enormous power to leverage its dominance in consumer social networking into other fields, whether messaging, photo sharing, or even crossing over into the enterprise, based on its familiar brand, interfaces, and tools. That’s never been a guarantee of success in any market for Facebook, as its repeated failures to compete organically with Snapchat demonstrate, but it has given it a leg up in many areas over companies starting from scratch and continues to make it a formidable competitor for any company going up against it directly.
Amazon and Walmart are in an all-out price war that is terrifying America’s biggest brands – Recode (Mar 30, 2017)
This is a fascinating article that looks at the competitive dynamics between two of the most powerful companies in retail: Amazon and Walmart. Walmart is legendary for the pressure it puts on its suppliers to conform to price expectations, but it appears that it’s going even further in demanding that those suppliers get their costs and prices down so as to allow it to compete with Amazon more effectively. Meanwhile, Amazon is pricing in a way that’s not necessarily rational or consistent with generating profits, which means that the competition between the two, while great for customers in the short term, is likely unsustainable for both the retailers and their suppliers, and something will eventually have to give. No surprise, then, that some of the CPG companies are starting to look to alternative channels, though realistically no big brand can afford to be off either of these companies shelves – in warehouses or stores – for long. This is likely to get a lot uglier before it gets any better. Meanwhile, that means that we may see more slowing of growth at Amazon along the lines for what we saw a little of in Q4 last year, while Walmart and its ilk will continue to pursue stronger growth at lower margins.
It’s interesting to see Walmart dialing this kind of thing up, while Target recently discontinued several efforts along similar lines. Walmart’s approach certainly makes a lot more sense – retailers absolutely have to be innovating around the in-store experience if they’re to preserve and build whatever advantages physical retail has, and technology is going to be central to that effort. That’s not to say Walmart will succeed – arguably most of its past innovations have been about merchandizing rather than technology, but it’s certainly got the resources to invest significantly in figuring things out.
Walmart is going after Amazon Prime with free two-day shipping and no membership fee – Recode (Jan 31, 2017)
Walmart is making two changes to its free shipping program: eliminating the $49 annual fee, and lowering the minimum purchase amount that qualifies for free shipping from $50 to $35. This doesn’t give the impression of Walmart coming from a position of strength, but rather one of weakness, where it has to keep making concessions and changes to try to make its equivalents to Amazon’s Prime service look more enticing. Of course, there’s also an argument to be made that Amazon’s Prime service works so well psychologically precisely because it has a hefty annual fee – once you make that commitment, you’re more likely to purchase lots of things through the site to justify and make use of the money already spent. Removing the membership fee means that users have no special reason to prefer Walmart over Amazon for any given purchase. At this point, I don’t think many people are choosing Amazon for shipping alone – they likely just think of Amazon as the default option for online retail, and if they happen to be Prime members (which many American households are) that seals the deal. Short of going all-in on free shipping a la Zappos, I’m not sure that any changes Walmart makes to its shipping policies and prices will move the needle meaningfully.
Every story about Walmart (or any other brick and mortar retailer) rejigging its e-commerce arm is bound to be seen in the context of Amazon’s dominance of the space, and Walmart has famously struggled in e-commerce despite its massive scale. At least two of these moves are about consolidating leadership of online and offline retail domains, which is a logical step (and one that Apple, for example, took a couple of years ago). Others reflect ongoing hiring from outside Walmart to strengthen its leadership team, and it looks like Jet is also being further integrated into the company, which was inevitable. Walmart won’t report its December quarter earnings until February 21st, but it will be well worth watching what impact, if any, Jet is said to have had on its performance.
Walmart has been hard hit by Amazon’s success and dominance of e-commerce, but has lately been taking more proactive steps to fill gaps in its own e-commerce portfolio, using its Jet acquisition to make further buys. Given the sheer number of small- to medium-sized e-commerce plays out there, Walmart can easily snap up these focused providers and roll them up into its broader e-commerce offering, accelerating its efforts to become more competitive with Amazon.