David versus Goliath, King Kong against Godzilla, Rosie O’Donnell and Roseanne Barr – and Walmart v. Amazon. History has provided us with innumerable contests and tales between big men and power players, and the present day is no exception. While Amazon is considered today the king of digital retail, one brick-and-mortar emperor aims to do the impossible: Dethrone Jeff Bezos from the mountain top of e-commerce.
Walmart Outperforms the Street
Amazon might dominate all the business headlines and be one of the richest companies in the United States today, but Walmart is giving the website a run for its money after the latest corporate earnings beat Wall Street forecasts and sent its stock soaring.
...consumers are now living paycheck to paycheck and are more in debt than ever before.
In the fourth quarter, Walmart’s online sales climbed 43%, driven by its online grocery delivery service and shoppers spending more per trip. Its in-store sales over a 12-month period were up 4.2%, topping the median estimate of 3.2%, which was supported by higher store traffic. Overall, Walmart posted a higher net income for the quarter ending January 31 of $3.69 billion, or $1.27 per share, and revenues rose 2% to $138.79 billion. Its earnings per share (EPS) was $1.41.
The results drove the stock 4% higher, climbing above the important $100 threshold. It also boosted its dividend by 2% to $2.12 a share.
Walmart has been investing billions into its e-commerce presence over the last couple of years. In recent months, it added more products to its online infrastructure, including celebrity-inspired clothing and premium camping gear, and purchased online brands like Art.com and Bare Necessities. The purpose is to diversify its inventory in the same way Amazon does, offering shoppers more options.
For now, The Street is impressed by its performance, with many investment houses giving it a “buy” or “outperform” rating. And analysts seem confident that Walmart can meet its sales outlook for the fiscal year 2020:
U.S. net sales: 3%.
International net sales: 5%.
U.S. same-store sales: 3%.
E-commerce sales growth: 35%.
To achieve these goals, Walmart intends to remodel its stores, bolster e-commerce efforts, and enhance its supply chain this year.
Amazon’s Worst Nightmare
Many of the established brick-and-mortar brands failed to make the online transition, like Sears and Target. But Walmart was one of the few retailers to successfully make that leap. Now, the company is allocating its resources from constructing new stores to spending more on technology and digital shopping.
Should Amazon be frightened? The company is certainly one of the e-commerce pioneers, from its two-day shipping to dynamic pricing to Amazon Prime. But it is no longer the only game in town, making Walmart the company’s “worst nightmare,” as one analyst recently declared on CNBC. Vendors are already conceding that Walmart’s Internet presence is improving and Amazon is traveling sideways.
Consumers are witnessing Amazon do more than offer cheap goods. The website is producing motion pictures and television shows, honing its cloud-computing infrastructure, and spying on willing users. Perhaps this could explain why year-on-year quarterly revenue growth tumbled to the lowest level in three years – it is doing more than what it became rich for.
It should be noted, too, that one of the reasons for Walmart’s success is its manpower. Not only is it hiring 2,000 technology experts, but it has also been poaching some of the best and brightest at Amazon. In the last few years, Walmart has hired David Cirscione, the developer of Amazon Go, and Marc Lore, the co-founder of shopping club Jet.com and who is attributed for Walmart’s meteoric rise in e-commerce.
That said, this might not be a case of either/or. Both Walmart and Amazon can co-exist in the cutthroat retail sector – and this can only be a good thing for the indebted customer.
Are Shoppers Tapped Out?
For all of 2018, traders and analysts had been waiting for American shoppers to overhaul their spending habits amid skyrocketing debt levels and economic uncertainty. It finally happened in December, when U.S. retail sales suffered their steepest decline in nine years as receipts cratered across the board, though the U.S. holiday shopping season rose to a six-year high.
This is partially why Wall Street was surprised to find out that Walmart’s sales were better than what the market had penciled in. But both companies might inevitably see their sales drop in the next few years because the shopper is tapped out.
After nearly a decade since the Great Recession, consumers have put this economy on their backs and have been living beyond their means to bring the country out of the doldrums of economic stagnancy. As a result, consumers are now living paycheck to paycheck and are more in debt than ever before. With interest rates gradually normalizing, it is more expensive to service these debt volumes, meaning less cash to spend at the local Walmart or on Amazon. It’s eventually going to be a bloodbath out there for all concerned parties. Jeff Bezos-Doug McMillon – who will win the battle of the billionaire executives?
