Despite the threat digital retail poses to brick and mortar, physical shopping is far from dead. Walmart is an excellent case in point. With earnings of over $559 Billion last year, Walmart’s sales easily overshadowed Amazon’s reported $386.1 Billion revenue last year. But while Walmart has a 32 year lead over Amazon, its market share growth in retail during 2020 was only 0.6 percent. In comparison, Amazon’s share of the total US retail market is now at 9.2 percent, representing an increase of 2.4 percent from 2019 and nearly tying Walmart’s 9.5 percent advantage.
Recent data provided by digital marketing analysts Retail Insight estimates Amazon’s total sales will grow by 75 percent by 2025, exceeding over $631 Billion by 2025—66 percent of which will come from third-party sellers. That same report indicates Walmart’s growth to only represent a 3.9 CAGR by that same year, to a total of $523.3 billion. Hardly a negligible number. But numbers may be one thing. Is Amazon finally beating Walmart at its own game?
Amazon, Marketplace Loyalty and the New Retail Model
Customer loyalty is as relevant to marketplaces as it is to brands. And despite its competition, Amazon’s dominance in eCommerce isn’t necessarily driven by market positioning or name recognition alone. It’s driven by its customer base; a base which is increasingly demanding of both innovation and personalization in their shopping experience.
But innovation will either disrupt existing business models by its very nature—or fail altogether. And not every consumer will be susceptible to change. Both differentiation and recognition of marketplace opportunities are the foundations Amazon was built upon. Prior to Amazon’s emergence, digital commerce was practically non-existent. Amazon realized the opportunity to develop a customer-focused platform which has revolutionized traditional retail models since its inception. Customers listened. Customers examined. And customers purchased. Loyalty programs may have already been in place prior to Amazon introducing Prime in 2005, but few saw the 33 percent growth rate it experienced between 2019 and 2020. While Amazon’s chief competitor Walmart recently introduced their own subscription based service, its visibility has yet to become a household name despite a first quarter increase in online sales of 74 percent for 2021.
Customers are just as likely to maintain the same level of loyalty to physical retailers as they are to digital counterparts. And historically, Amazon’s physical services and shopping hubs have nowhere matched the amount of sales volume Walmart enjoys. But digital acceptance in the US retail marketplace surged dramatically during the first three months of 2020 by a growth rate of nearly 35 percent; a spike many analysts predict there’s no turning back from. What does this mean for Walmart?
Walmart: The Perils of Brick and Mortar in a Digital World
Since its founding in 1962, Walmart’s greatest strength has always been its bottom line: consumer price advantage. And that advantage has lent itself to a near fairytale success story, from its mythic beginnings as a five and dime store to its current status as the largest global retailer operating over 11,000 locations worldwide.
But not every fairytale success story will translate well to the digital realm—not least of which is Walmart’s. While Walmart’s key advantage may have been historically low prices (even spawning an entire business model known as EDLP in the process), its key demographics have tended to skew towards females between the ages of 45 - 54; neither slow adopters of eCommerce nor necessarily lacking in spending power, but effectively belonging to the last generation born prior to the digital explosion.
They’re also a demographic which have historically been more apt to shop in-store, retaining a fierce loyalty towards preferred brands and purchasing habits. And Walmart’s branding has helped cultivate that appeal, portraying itself as a relatively “hometown” entity with a demeanor which borders on the downright folksy. But can that image survive in the decidedly global world of digital commerce?
Not necessarily. Walmart’s forays into eCommerce have been studded by just as many failures as it has successes. Nor has Amazon’s history been a unilateral success. But in order to compete with Amazon’s global reach, Walmart will have to innovate to survive—a factor they’ve historically been unable to reproduce. Walmart’s chief competitors in the international segment have largely been either membership-only big box retailers or discount chains, with Costco and Best Buy being among the two most prominent. And neither of which are segments which have yet to make a strong headway into the digital market.
Success in eCommerce can be as much a question of breaking the mold as much as developing an entirely new one. Value for both brands and marketplaces isn’t necessarily a question of price advantage. It’s a question of differentiation. As consumers adopt the new digital retail landscape at a breathless pace, the need for distinction is critical if marketplaces have any hope of competing. Walmart may have dominated brick and mortar retail over the past 63 years. But 2021 is not 1962. And the chances of 2025 is not likely to roll back to 1962 for Walmart, either.
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