Walmart’s Amazon Defence

By Glenn Dyer | More Articles by Glenn Dyer

There’s still an awful lot of guff being written about how Amazon is going to damage Australian retailing, its suppliers and other sectors of the economy and stockmarket

Yes, Amazon has had a huge impact on retailing in North America and the UK especially, and yes it has also had a big impact on computer software and hardware and technology generally with the rapid growth of its pioneering AWS cloud computing business.

But more important, the retailer all the US ‘experts” reckoned was toast and would be easy pickings for Amazon, is no longer looking like roadkill and has fought back to the point of no causing second thoughts about Amazon’s retail strategy.

The first is Walmart – the world and America’s biggest retailer. For years its faltering online efforts and sluggish sales growth had it on the top of most ‘expert’ lists for Amazon’s biggest victim.

But in the past 18 months it has slowly been fixing its game (helped by the head of its key US business, Greg Foran, the former Woolworths executive who was wrongly denied the top job in Australia).

The past couple of quarterly reports provide more evidence of the gathering turnaround at Walmart but last week’s third quarter report showed something more – soaring online sales growth of the sort that Amazon would be amazed at, and the strongest retail sales growth for 8 years

That saw Walmart shares jump 11% on Thursday to an all-time high of $US100.13 – they eased 2.1% in Friday’s bout of profit taking. The reaction from investors was interesting as they and most analysts no longer see Amazon as destroying Walmart’s retail business or damaging it.

And it is being reflected in the stockmarket. So far this year, the S&P 500 retail index is up 20% but only half of its 29 components have had a positive price rise. Amazon, up over 48% this year at $US1,129.88, has alone added $192 billion in market capitalisation in 2017. The full index has gained roughly $US230 billion, according to Reuters data.

Walmart shares are up 43% year to date. Its market cap at $US293 billion is a long way short of Amazon’s at $US543 billion, but Walmart’s third quarter figures (the best since 2009) is the strongest sign yet that Amazon has got tougher times ahead if it is to do to US retailing what all the eager beaver analysts reckon it will.

If anything some analysts are wondering if Amazon is now vulnerable with some wondering if the rapid growth in Walmart’s fresh food sales – both in store and online, will Amazon’s attempts to bulk up in the grocery area by buying Whole Foods earlier this year for $US14 billion in cash (around $A17 billion).

Walmart CEO, Doug McMillan a key area of growth for the company was its food business, which had its strongest quarter in almost six years. McMillan said the company’s fresh meat, bakery and produce segments “lead the way” in this segment during the quarter.

Walmart’s US eCommerce growth was up 50% in the third quarter with, which includes online grocery sales, “responsible for the majority of the growth in the period.” (it is core, and not its unit, where Walmart is seeing most of its online sales grow.)

Walmart’s recent success in riding these changes in grocery and food helps explain why Amazon felt the need to go compete on Walmart’s terms. Amazon did not buy Whole Foods because it wanted to be in the grocery business, but because it wanted (needed?) to be in the physical retail business.

Until it started building trial book shops in Seattle and New York, and then bought Whole Foods Amazon had no physical retail presence, meaning its transactions were entirely initiated online and completed with a delivery.

Walmart now has online grocery in more than 1,100 stores across the US. It will add another 1,000 next year. It has more than 5,000 stores and clubs (Sam’s Clubs which compete with Costco).

In the online space Walmart owns, ModCloth, Bonobos, Moosejaw and several other shopping sites, and these businesses help explain why its digital sales rose a 50% in the United States during the third quarter. That helps explain the strong 2.7% rise in comparable (same store) sales. Walmart said that online sales accounted for 80 basis points of that 2.7% increase in comparable sales. That’s a solid sign that Walmart is getting is online act together.

Glenn Dyer

About Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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