Amazon Versus Walmart. Who will emerge victorious?

To understand why Walmart survives while at the same time Amazon thrives you must look at the basic business models of each shopping experience.

Walmart is a traditional mass merchandise retailer. Walmart offers products for sale and hopes to make a profit on everything they sell. They also rely on the shoppers choosing to pick up additional items while they are in the store so the net shopping cart value can be quite high in many cases.

They have marketed themselves as having a large selection and generally low everyday prices. Shoppers may visit a Walmart store because they want to see the merchandise, try it on, touch the fabric, read the instructions on the box, or ask the department merchandiser a question. There is a lot of psychology involved in a Walmart shopping experience including the store layout and product placement. Thru marketing, they have convinced their customer base that Walmart is low priced on all items. If you do any amount of comparison shopping you know that Walmart is low priced on what they considered the Market basket products that every mass merchant retailer should be selling. These are also the products that most consumers can identify as a good value if the price is right. Everything else in the store may not be a great value but the customers won’t take the time to comparison shop. After all, who cares if that 300 pack of paper plates is 10% more expensive. The customer the customer is already in the store so they just throw it in the cart along with all the other impulse items they see as they shop.

Amazon is both an e-commerce retailer and a third party selling platform.

Amazon’s business model emphasized growth over profits. Jeff Bezos was fortunate to attract enough investment capital to grow the business without the pressure of trying to be profitable. Even with massive year over year growth, it still took around 15 years for Amazon to turn a profit.

As an e-commerce retailer, Amazon offers many private label products they have developed. They have these goods manufactured for Amazon, they buy and sell in large quantities, and they normally make money on the sale.

As a third party seller, Amazon charges sellers a fee after a listed item is sold. This fee includes some level of Amazon customer service, marketing services, and order payment processing services. The fee varies by product category. Amazon probably makes a little profit on each sale but not much. Amazon business model calls for cash flow growth rather than actual profit in these areas.

Amazon as a subscription service. Amazon sells Amazon Prime subscription services offering free shipping, Amazon prime video, and several other services. These services, will not necessarily profitable, do build customer loyalty.

The major differences between Walmart and Amazon with regards to revenue.

Walmart sells, or at least hopes to sell multiple items to every shopper coming in thru the front door. This increases profitability since many of the items are larger profit impulse items.

Many Amazon orders are single item checkouts. Customers come to Amazon, shop for a specific item, put it in their cart and checkout. Even with Amazon’s affinity sales algorithms, it is a difficult web site to shop. You normally will only search for your specific items of interest and seldom add impulse items.

Both retailers have a bright future and both are taking steps to build market presence in each other market strengths. Amazon is opening and has plans to purchase brick and mortar stores, and Walmart has made many major purchases of online, e-commerce sellers.

Strap in, the next 5 years or so in the retail world may become very interesting.

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