The battle over your retail dollars is heating up between the two heavyweights in the ring. Amazon and Walmart, once content to jealously guard their home turf against smaller competitors, are increasingly beginning to square off directly with one another. Nowhere is this more evident than in the recent headline announcing that Amazon intends to buy the grocery store Whole Foods. The purchase tops a long list of other actions both companies have taken over the past several months as they attempt to go after each other’s market. The headline from a TechCrunch article says it best: “Amazon wants to become Walmart before Walmart can become Amazon.”
Amazon is far and away the largest online retailer in the United States, with annual revenues well north of $100 billion. Walmart does not even come close when it comes to eCommerce, but the company has experienced rapid growth recently with a 63% increase year over year, according to its latest quarterly report. However, what Walmart does have a vice grip on is the grocery market. The retailer is the undisputed king of that sector of the economy, with a commanding market share lead of 17.3% that is nearly double that of their nearest competitor, Kroger. Amazon, with its current grocery delivery services, holds on to a mere 0.8% of the grocery marketplace. Adding in Whole Foods’s 1.7% share of the pie will by no means threaten to overtake the leader, but it does put Walmart on the defensive. Grocery sales make up over half of Walmart’s total revenue in the United States.
In addition to moving in on its grocery business, Amazon is also trying to break off a piece of Walmart’s customer base – the poor and working class. The online retailer recently announced that it would heavily discount its Prime service for anyone receiving government benefits. The thinking is that less affluent individuals are wary of the shipping fees associated with online shopping. A Prime membership includes free shipping but typically costs $99 a year – a fee too steep for many people living paycheck to paycheck to handle. When coupled with a relatively new monthly payment option, the 50% rate reduction will undoubtedly grow enrollment in the program. Once someone becomes a Prime member, he or she tend to spend more than double what non-Prime Amazon customers spend each year, according to analysts. If Amazon’s ploy succeeds, Walmart stores may end up becoming a bit less crowded as former shoppers turn to the Internet for their retail needs.
Not to be outdone, Walmart has also been pursuing its own strategy to better compete with Amazon. The company has been on a spending spree lately. Jet.com, which came close to being a direct competitor to Amazon than any other company, tops the list of past acquisitions by the mega-retailer. To better compete in the clothing segment, Walmart revealed that it would add the company Bonobos to its holdings the same day that Amazon pulled the curtain back on the Whole Foods deal. To better compete with the unparalleled delivery capabilities of Amazon, Walmart has just begun testing a program where store employees deliver packages on their way home to customers who ordered online. The new concept is currently being piloted at a small handful of stores, according to Walmart’s blog. With 90% of the population living within ten miles of a Walmart, this could be what puts Amazon on the defensive.
As the two retailers slug it out over your discretionary spending dollars, rest assured that you, dear consumer, will be the ultimate winner. With new synergies and innovations coming out left and right, expect more services delivered more quickly and at a lower price than ever before.
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