Retailing these days can be thought of as really just a two-horse race. In lane one is mighty Amazon (NASDAQ:AMZN). In the other is discount champion Walmart (NYSE:WMT). And while it may seem like AMZN has the upper hand, you can not count out WMT in the slightest. The world’s largest retailer continues to fight back in a big way and the tug of war between the two is shaping up to be a big battle.
The latest salvo from Walmart against Bezos’ baby is taking a very successful play out their own books and applying it against them. We’re talking about digital advertising.
AMZN has already used digital advertising effectively and Walmart’s latest announcement to get into the game could put pressure on Amazon and ultimately cut some of those lucrative revenues. For investors in WMT, it just goes to show that the traditional retailer is adapting to the new environment with gusto.
Walmart Gets Serious About Digital Ads
We’ve talked before about how Amazon is effectively selling space on its website to advertisers. The quick gist that vendors bid to have their products show up alongside a related search term.
So, Proctor & Gamble (NYSE:PG) pays to have Tide products show up alongside the words “laundry detergent.” The beauty for Amazon is that it doesn’t matter if you buy Tide or Arm & Hammer, it still gets a sale and makes money on the sponsored ad.
However, advertisers love the sponsored ads, as they can and do result in higher sales and AMZN is a retailer. Searching detergent on Google (NASDAQ:GOOG) still requires you then go to a retailer to purchase. By using Amazon, it cuts out the middle man. Because of this, Amazon’s digital advertising revenues have continued to surge over the last few quarters. In fact, last quarter, AMZN reported that ad sales and other revenue jumped 95%to $3.4 billion.
Do you know who else has a website that sees an insane amount of consumer traffic? Walmart. And now Walmart is looking to get in on the digital advertising act as well.
In a meeting with suppliers at the end of February, WMT unveiled a plan to capture more advertising revenues. For starters, the retailer is now consolidating teams into a single group for ad sales and operations. That includes bringing its digital ad business under its banner and ending its relationship with ad giant WPP.
Secondly, Walmart has plans to expand access to a massive amount of consumer data. According to Forrester Research, more than 300 million shoppers visit Walmart’s stores every month and millions visit its various shopping brands websites each month. These shoppers create a ton of data that advertisers would kill to get their hands on. However, for the longest time, WMT hasn’t done anything with it.
A Big Deal for Walmart
All of this is a huge win for Walmart. The idea is that WMT becomes a network that firms can advertise on. Just like AMZN, Walmart features a rich ecosystem of websites and tangential offerings such as its Vudu video service. Using its rich pool of consumer data, on-demand and native advertising become a snap for firms tapping into WMT’s network. Suppliers can pay for ads to sell products across the entire system. Did you buy a bike at a physical store? Well, you could now see an ad for a bike helmet while watching a movie on Vudu. And that clicked ad could take you to Jet.com — a Walmart brand — to purchase it.
Moreover, like Amazon, Walmart can benefit from the same sort of “sponsored ad” set-up within its core website. Walmart gets the sale and ad revenue.
But where Walmart potential has a leg-up on Amazon is in its physical store frontage.
Already, product makers like Unilever (NYSE:UL) or Kellogg’s (NYSE:K) pay WMT to set up physical displays and ads in its stores and aisles. But with access to the trove of consumer data, this can allow them to target very specific stores among its 4,600+ locations. Why waste money and time, when UL can pick these 100 stores that have exactly the consumer they are looking at for new mayo product. That’s basically what Facebook (NYSE:FB) does for advertisers. Walmart can now do that with its physical stores.
A Potential Game Changer for Walmart
As we’ve seen with Amazon, digital ads can be a huge money-maker for a retailer. Given WMT’s huge base of data and store frontage, similar results should be had. And, like AMZN, the easy revenues here will allow Walmart the ability to invest in continued omnichannel innovation and help it fight the online sales war.
All in all, the decision is a huge win for Walmart and its investors.
And while Amazon will feel the heat, it probably won’t be a crushing blow. But it could hit ad revenues a tad. And where Walmart could hit hard is among the pure players, like FB and Google. Already, we’ve begun to see the cracks in GOOG’s advertising armor. With WMT getting into the mix, its dominant position will be tested even more.
The bottom line is that Walmart has found a smart way to get some additional revenues and build-out its online presence. Investors in WMT should be proud.
Disclosure: At the time of writing, Aaron Levitt held a long position AMZN