Amazon Vs. Walmart: The Epic Battle Of Retail Kings Gets Hot (2024)

The two-decade war of Amazon vs. Walmart just heated up, with no end in sight. And the fight for retail and e-commerce dominance holds big stakes for both Amazon stock and Walmart stock.

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Amazon (AMZN) plans to build its first large-format retail stores, according to the Wall Street Journal. The stores would represent Amazon's latest foray into physical retail outlets and step up its game against Walmart (WMT).

Amazon's 30,000-square-foot stores, which will debut in California and Ohio, are less than one-third the size of Walmart's conventional outlets. They're about one-sixth the size of Walmart Supercenter stores. But Amazon makes a critical foray into enemy territory with its move. And the plan comes at a time when it's starting to overtake Walmart.

According to data compiled by FactSet and reported by the New York Times on Tuesday, Amazon's sales, and those of third-party sellers on its platform, eclipsed Walmart's over the year ended in June. Consumers spent $610 billion at Amazon from June 2020 to June 2021. In that same period, shoppers spent $566 billion at Walmart, the report said.

"It's noteworthy because what it shows is that growth in the digital space has been huge," said Bill Bishop, who uses the title of chief architect at Brick Meets Click, a research firm focused on the retail grocery market.

The Shift To Amazon Vs. Walmart

That data comes with caveats, however. From a straightforward revenue position, Walmart remains larger. Walmart reported revenue of $559 billion in 2020 vs. $386 billion for Amazon. That gap closes when you look at the 12 months ended in June, when Walmart reported revenue of $566 billion vs. Amazon's $443 billion.

The $610 billion Amazon sales figure from June 2020 to June 2021 is an estimate that includes sales on its platform via third-party sellers. Amazon only reports the fees it charges as revenue, not the full gross merchandise sales handled through its platform. Still, it marks the first time Walmart has been outsold since 1990, when it passed Sears to became the country's largest retailer. Amazon has 2 million third-party sellers on its platform compared with 100,000 for Walmart.

"Bragging rights are bragging rights," Bishop said.

Amazon stock analysts thought this shift from Walmart to Amazon would arrive next year. The pandemic accelerated the timeline as shoppers relied heavily on home delivery. Walmart's sales jumped during the pandemic, but not as high as Amazon's.

But the Amazon stock vs. Walmart stock feud in the financial markets goes to Walmart, at least for 2021. Walmart stock has managed a gain of 4.35% so far this year, while Amazon stock has a gain of 2.5% in that time frame. Amazon stock has struggled since reporting disappointing results in late July while Walmart is climbing up the right side of a nine-month consolidation, and could be near a breakout.

Amazon Vs. Walmart: Lagging In The Markets

However, both are lagging the S&P 500, which is up more than 20% this year. And compared with their pandemic crash lows in March 2020, Amazon has nearly doubled since that time while Walmart is up roughly 47%.

Walmart's Relative Strength Rating is a mediocre 54, while Amazon's is an anemic 28.

The Amazon vs. Walmart rivalry has been a neck-and-neck competition for the $4.3 trillion U.S. retail market, which includes the $1 trillion e-commerce market as well as the $1 trillion market for groceries.

Each company has its own set of advantages. Walmart, the behemoth of brick-and-mortar discount stores, has the most outlets of any retailer.

About 90% of Americans live within 10 miles of a Walmart. On the other hand, Amazon, the giant of online shopping, owns about 40% of the e-commerce market.

"If someone needs something immediately, that's a competitive advantage for Walmart," said Brian Yarborough, an analyst at Edward Jones. "But Amazon has a much greater online presence, with a shipping and logistics presence that's far above Walmart."

Amazon's speedy delivery outpaces all its competitors. But the advantage is expected to wane over time, as Walmart invests heavily in building out its logistics and delivery, says Yarborough.

"Amazon needs to build additional physical locations to get them closer to consumers," he said.

Other Fronts In The Retail War

The new retail locations Amazon reportedly plans to build will carry clothing, household items, electronics and other products, the Journal said.

As the Amazon vs. Walmart fight has played out, Amazon has experimented with multiple types of retail concepts over the years, primarily small stores, then pulled back.

Amazon and Walmart aren't the only gladiators in the fight. The battle for retail supremacy is raging along multiple fronts. Target (TGT), Costco (COST), Home Depot (HD), Kohls (KSS), Kroger (KR) and other giant retail companies are also adopting new business models, leveraging their brick-and-mortar stores in conjunction with digital shopping.

Much work remains for either company to win the Amazon vs. Walmart battle. Walmart needs to expand online operations while also managing 11,500 stores across 28 countries, of which 4,743 are in the U.S. It's in the process of redesigning 1,000 stores by the end of 2021. Its goal is to create a more streamlined and faster shopping experience for customers.

Amazon must continue its aggressive rollout of warehouse distribution centers and figure out its strategy for building physical stores.

Meanwhile, Walmart is focused on sharpening what's called an omnichannel strategy. The idea is to provide consumers multiple options in how, when and where they buy goods. Walmart shoppers can buy online and have the goods delivered, just like Amazon. In addition, consumers have the option to visit a Walmart store to shop or pick up an online order. This includes the curbside pickup of groceries.

Walmart Expects $100 Billion In E-Commerce Sales

"We continue to build a very sizable e-commerce business around the world," said Brett Biggs, Walmart chief financial officer, during Walmart's second-quarter earnings call with analysts. "In fact, we're on track to deliver $75 billion in global e-commerce sales this year and on our way to $100 billion in the near term."

Walmart reported $40 billion in e-commerce sales in 2020.

"We're also seeing continued strong U.S. market-share gains in grocery, which is a key part of our business," Biggs said.

David Spitz, chief executive of ChannelAdvisor, which helps merchants manage their wares through multiple platforms, says Walmart has done a good job defending its grocery division.

"It's been a success story for Walmart. Now they need to accelerate the pace on logistics and fulfillment," he said. Walmart generates more than half its domestic sales from groceries.

Meanwhile, Amazon seems unsure about the direction it wants to go with brick-and-mortar retail and grocery stores, something it has experimented with for years.

Amazon's Uncertainty In Retail Formats

The Amazon vs. Walmart war on the ground entered new territory in 2017. That's when Amazon kicked off a major expansion into groceries with its $13.7 billion acquisition of 468 Whole Foods Market stores. The deal was supposed to jump-start Amazon's grocery effort. But the acquisition hasn't been as transformative as some expected, says Bishop of Brick Meets Click.

Amazon discovered fewer dedicated shoppers made Whole Foods their main destination for groceries than it thought. The number was well below that of other large chains.

"Whole Foods is a secondary store for most," Bishop said.

Moreover, while Amazon has proved to be No. 1 when it comes to preparing packages for delivery, that hasn't been the case with fresh groceries.

"Amazon has shown a remarkable inability to handle the fresh portion of groceries," Bishop said. "The fresher products like produce and bakery, seafood and other perishables are hardest for Amazon to handle because it requires a different set of skills."

But after years of experimentation, Amazon seems to have settled on its grocery store plans with Amazon Fresh stores. U.S. Amazon Fresh stores range from 25,000 to 45,000 square feet. The stores are equipped with high-tech gear designed to automate food shopping. This includes automated carts and smartphone apps, helping customers find items, track purchases, and skip the checkout line.

The first Amazon Fresh store opened to the public in Los Angeles one year ago. About 11 have been built, with another 17 planned, say reports, which Amazon has not confirmed.

Seeking Customer Loyalty In Amazon Vs. Walmart

Amazon also has benefited heavily from its Amazon Prime customer rewards program. Amazon Prime customers now number more than 200 million, up 50 million from the start of 2020, a JPMorgan report says. And shoppers on Amazon Prime purchase substantially more merchandise than non-Prime members.

Users pay an annual or monthly fee for the service and receive multiple perks, such as free access to Amazon Video and Amazon Music. Amazon has invested billions of dollars in its film and TV operations as well as live sports.

Walmart's response to Amazon Prime is Walmart+. The new service, started in September 2020, includes unlimited free grocery delivery and gas discounts, among other perks. In its first five months, Walmart+ secured around 8 million subscribers

Both companies are also expanding in the health care business, where victories could have a substantial benefit in customer loyalty and revenue. It's just one more step in the Amazon vs. Walmart drama.

Walmart Vs. Amazon At A Glance

Sources: Company reports, Statista

Please follow Brian Deagon on Twitter at @IBD_BDeagon for more on tech stocks, analysis and financial markets.

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