WalMart has a store within 10 miles of 90% of the US population. In a number of years, if e-commerce takes over the world, as some plan it will, WalMart will be uniquely in position to deliver goods at ease-converting certain stores into warehouses. Let us not forget, Amazon is the best at it’s own game. That cannot be contested. WalMart is doing what it can to keep up by offering free 2-day shipping on online orders. It has also been floating around the idea of employees delivering goods locally from the store to home.
The real investment thesis here is that Amazon has won the battle, but the war has just begun. WalMart may well be in a better position going forward. Hear me out: They have infrastructure as noted in the first sentence and as an advantage, and they have focus. Besides the Amazon everyone knows and loves, Amazon’s Jeff Bezos wants to go to space and offer cloud computing to all of Earth; WalMart only wants to sell goods at a low price. This singular focus and already in-place infrastructure may be all it takes to make a run for more customers.
Back to the idea of leadership. Marc Lore, the man who’s company, Jet.com, was purchased by Walmart in late 2016 now runs the e-commerce platform. He has a history in the internet retail business that, although less prominent than Bezos, is not all that different. Bringing in this outside talent and putting him in charge of the future was a bold and, so far, successful move. Above him is Doug McMillon, a Walmart-lifer since 1984. The new team and focus should prove a formidable hurdle for Amazon to jump.
While Walmart may be behind by a few years, Amazon is picking up and moving focus to other segments. Some say it is harder to stay at the top than get there; we will see. Amazon web services may well be the future for them, but maintaining its competitive advantages are also a worthwhile endeavor.
As it is clear to all, the valuation metrics for WalMart and Amazon could not be any further away. WMT trades at a price 22 times its earnings. AMZN moves hands around ten times that of WMT, at 240. There is obvious reason for this. Amazon has its hand in many other business ventures, the main being Amazon Web Services, or AWS. AWS currently accounts for about 10% of Amazon’s revenue (~$4b of ~$40B), but is estimated to grow. While they do have serious differences, their similarities are striking.
Amazon recently purchased Whole Foods in an attempt to gain market share, and perhaps expertise, in the grocery business- something WalMart has been working at for years. They both revolutionized the retail space and they way it is operated. It is safe to say that WalMart’s online store pales in comparison (by size, volume, ease-of-use, etc.) but if they are willing to keep investing in the platform, they may see market share gain.
My investment thesis boils down to this: Both WalMart and Amazon will become the leaders in the retail space by taking even more market share from competitors. WalMart has more room to improve and lower expectations. Couple this with a vast infrastructure of warehouse stores near most of the population and they have potential to update the rules of the game again. As we have seen from this Black Friday-Cyber Monday, UPS has been having great difficulty delivering the volume of packages on time. Could WalMart’s prime locations help to alleviate this?