65. Amazon Business Series: Amazon v. Walmart, Part 4

The rollout of supercenters at Walmart (WMT) stores across the U.S. was ending in 2000 as Amazon (AMZ) was simultaneously starting to nibble on WMT’s consumer whole goods sales. WMT’s subsequent 17-year response has been a slow, poor, expensive imitation. Walmart supercenters and Amazon’s online inventory have competed for nearly two decades, but is that WMT’s best strategy?

WMT can’t catch up. But, they do show signs of shifting their online capabilities to possibly digitally improve their core customers’ in-store shopping experience.

WMT’s Profit Core

A WMT supercenter stocks roughly 100,000 of the most popular consumer items. The top 7,000 SKUs by sales account for 70% of all sales. These SKUs all pass through WMT’s cross-docking centers. The daily delivery of these items to stores enables 99% fill rates with no excess inventory at everyday low prices. Customers go to WMT to load up on these consumables and buy other things they need. The bottom 80% of U.S. households, by income, can’t afford not to shop at WMT. These items and these customers are WMT’s profit core (times 4,200 stores in the U.S.).

Rethinking Bricks and Clicks

WMT has invested well over $10B in electronic commerce fulfillment warehouses, and other avenues; this only comes up short when comparing Walmart supercenters and Amazon’s online inventory. But, WMT is now experimenting with how these capabilities can be used to serve their profit core. We can call this alternative path digital kaizen, or continuous digital improvement.
As part of this improvement, WMT has created the Easy Re-Order online form, which shows all previous purchases. Consumers just click to order and then pick up from an orange pick up tower code-named Rapunzel.
For the future, assuming 5G phone service and digital shopping by all by 2019, other avenues may include:

  • A store app that texts shopping possibilities to customers as they walk through the store
  • In-store signage (and guides) for upsells, cross-sells, and savings-sells on the 40MM additional SKUs in the eCommerce fulfillment centers
  • Marrying these two to an online comparison tool for both price and delivery where deals may vary with the consumer’s loyalty purchasing record

Lessons for Your Firm

What can you learn from the 17-year battle between Walmart supercenters and Amazon’s online inventory? Be true to your infrastructure and your most historically profitable customers. Don’t try to sell online to the world, because AMZ’s infrastructure wins. Ask your most profitable customers in your most profitable niches how you can digitally enhance their total buying needs. Then, do it.
Lastly, measure and fix the profit cross-subsidies among your customers and SKUs before AMZ steals your best customers and your best SKUs. To do this, you should master cloud service line item profit analytics. Contact me for a tutorial at bruce@merrifield.com.
Meanwhile, think about these questions for your own business.

  1. What does “be true to your infrastructure” mean? If you have a distribution center in a part of town with little drive by traffic, then it isn’t a Fastenal or Grainger “wholetail” location on a four-lane commercial highway or retail space at the mall. What can your center do and not do versus AMZ’s? Ditto with your web site versus AMZ’s? And, do you want to keep any outside sales reps? Then, what are the best customers, best products, and new ways to sell that only you can do best?
  2. Can you create “easy-order forms” under a customer’s login at your web site that allow customers to most easily eyeball their onsite replenishment needs and re-order? Vending machines connected to the internet can even automate the easy order entry.

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