As Amazon Dethrones Walmart, Has the Retail Narrative Shifted?

2020 may have been the year when eCommerce became an indisputable force in the retail economy. But it was 2021 which was the year in which the retail narrative changed entirely—at least as far as its key players are concerned.


That narrative was by and large driven by Amazon. And it’s likely going to continue to be informed by Amazon as digital retail continues to spike to unprecedented heights. But an Amazon-centric focus comes with its own constraints, not the least of which has resulted in increasing public criticism. It might be easy to say that Amazon possesses a disproportionate share of the digital economy. It’s harder to admit they’re directly responsible for enabling and nurturing the growth of that same economy to begin with.


The same couldn’t always be said for Walmart. Up until recently, their transition to online retail was marked by as many successes as it was failures. But Walmart is to brick and mortar what Amazon is to eCommerce. Yet the gulf between digital and physical retail is a vast one, and strengths may not always translate effectively between the two. Walmart may have seen an astounding revenue growth of 74 percent in online sales during 2021’s first quarter, yet it barely made a dent in Amazon’s armor. As reports of Amazon exceeding Walmart in sales volume by over $40 Billion emerge, what will the retail narrative look like beyond 2021?


Brick and Mortar, Advertising and the Third Party Boom


Success in retail isn’t just measured by sales alone, but by diversity—not merely in product lines, but in brand visibility. While the reported decline in traditional advertising by 15.7 percent in 2020 dealt a significant blow to retail marketing, it’s not simply the pandemic which fueled its downfall. Marketing was facing a gradual decline well before 2020, owing as much to changes in shopping habits and priorities as it has in decreasing consumer trust. And it’s a downturn which both Amazon and their third-party marketplace have used to their advantage.


Amazon’s advertising sales saw a massive growth rate of 87 percent during Q2 of 2021, even despite predictions that loosened pandemic restrictions would result in a sharp increase in brick and mortar retail. And physical retail sales have increased during Q2—by almost 15 percent from the previous quarter. But if there’s anything about the shift in consumer habits that 2020 has taught the retail sector, it’s that customers are just as concerned with choice and convenience as they are with the physical shopping experience. An estimated 68 percent of shoppers have indicated that same day delivery is a decisive factor in choosing to make an online purchase.


Yet that increase can come at a cost. The strain on global supply chains is currently at a critical mass, leaving many third-party sellers with increasingly limited options for cost-effective delivery.


While Walmart has successfully attempted to make some headway into the third-party marketplace, sellers still can face certain limitations. Not the least of which is Walmart’s chief consumer value: price advantage. Walmart prioritizes product listings by the lowest price, leaving many sellers struggling to maintain their ground—frequently at the cost of their own product margin. Nor is price necessarily the chief concern of online shoppers.


Walmarting, EDLP and the Digital Economy


Walmart may have consistently strived to cultivate a customer friendly image by providing a one stop shop appealing to budget conscious families. But what has proven to be a successful image over the past six decades can be met with challenges in the digital realm.


Much of the criticism levelled against Amazon is also applicable to Walmart. Namely, that the presence of both enables a monopolization of the marketplace, giving both retailers an unfair advantage based on disproportionate shares. It’s a criticism Walmart knows far too well; resulting in the term “Walmarting”; a process in which smaller retailers are pushed out by both expansion, acquisition and Walmart’s own discount pricing strategy, reflected in the popular marketing model of EDLP (“Everyday Low Pricing.”)


But the vast majority of Walmart's sales primarily come from their own inventory, not from third-party sellers—who currently number a little over 100,000 compared to Amazon’s 6.3 million strong market. While vying for a share on both marketplaces is growing more competitive by the day, the amount of non-grocery products available online from Walmart actually shrunk from 50 million to 36 million in 2020 in spite of increasing third-party presence—a number which can be attributed to Walmart’s stringent vetting process. In comparison, only 45 percent of Amazon’s sales in Q1 2021 came from their own inventory in 2021.


Walmart’s continued investment in eCommerce isn’t going to be quelled anytime soon. They’ve already earmarked $14 Billion for the fiscal year 2022 to improve existing operational infrastructure, with much of that being devoted to improving online presence and fulfillment. But there’s one critical component which separates digital commerce from its physical counterpart: innovation. Low prices simply aren’t enough in online retail. What drove consumer interest in eCommerce long before the pandemic will continue to drive it in 2022: product diversity, accessibility and availability.


There may be a Walmart on virtually every street corner, and that’s not likely to change anytime soon. But physical visibility doesn’t translate to retail innovation. Walmart’s track record proves they have mastered the former. But can they achieve the latter? Millions of unconverted customers may be counting on it.


 

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