Walmart (NYSE:WMT) CEO Doug McMillon has done an excellent job building a reputable online business since taking the top job in February 2014.
That’s a healthy growth rate for sure, but when it comes to a Walmart vs. Amazon (NASDAQ:AMZN) comparison, Bentonville can’t hold a candle to Seattle.
Walmart Is the Underdog
Walmart began its e-commerce initiatives in 2000 when it launched Walmart.com. Amazon got its start as a company in 1994 but only started selling books online the following July; it moved into DVDs and CDs in 1998, home improvement products in 1999, and the rest is history.
Technically, Amazon didn’t get much of an online head start on Walmart, growing its revenues since 2000 by 23.8% on an annualized basis.
Since McMillon took over as CEO, Amazon has grown its non-AWS revenue by 22.5% on an annualized basis through the end of December 2017.
Some of that is brick-and-mortar revenue from Whole Foods, etc., but Amazon is still growing its online revenue at a faster pace than Walmart.
The Last Mile
Walmart.com CEO Marc Lore has promised 40% growth in 2018. A lot of that growth coming through increased revenues from grocery delivery.
“We’re playing to our strengths right now,” Lore said at Fortune’s Brainstorm Tech conference in Aspen, Colo., on July 16. “Everyone is racing toward same-day delivery and I think we’re set up really well.”
Retailers of all sizes, including Walmart and Amazon, are working hard to figure out the last mile. The Walmart vs. Amazon debate when it comes to this critical piece of the e-commerce puzzle is still very much up in the air.
Walmart clearly understands that it has got to use its brick-and-mortar footprint to its advantage in much the same way Best Buy (NYSE:BBY) has done in electronics.
Walmart Vs. Amazon: Prime Is the Difference
There’s no question that Walmart is making considerable strides in its online business. However, unless it can figure out how to create a business model that can compete with Amazon’s Prime membership, it won’t matter a lick that Walmart has almost three times as much revenue as Amazon and is the world’s largest retailer.
In March, I explained why.
“Take 90 million Prime members and 90 million non-members and calculate the annual revenue from each cohort — $87.5 billion for Prime and $15.8 billion for non-prime — and it becomes apparent who Amazon is courting,” I wrote March 2.
Between Prime members spending double what non-members spend on Amazon and the annual membership fees Prime members pay, I don’t care how many private-label brands Walmart creates; it’s not going to overcome the Prime members’ stickiness factor.
Like Costco (NASDAQ:COST), Amazon will use the membership fees as its one of two main profit centers — the other being Amazon Web Services — accepting grocery-like margins on enormous volumes for a majority of its revenue.
When it comes to Amazon vs. Walmart, the reason to pick its stock over Walmart’s has nothing to do with online versus brick-and-mortar and everything to do with Prime.
Prime is the Amazon advantage. It’s that simple.
As of this writing Will Ashworth did not hold a position in any of the aforementioned securities.
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