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As the rest of the retail sector sinks, Amazon (AMZN) and Wal-Mart (WMT) are engaged in a fierce battle.
Amazon’s utter dominance of e-commerce sets it apart in an era when ever-more sales are moving online as shown in the chart below.
As the leading e-tailer, Amazon has been the largest beneficiary of a massive shift online.
Indeed, Amazon has revolutionized the way Americans consume. Those who want to shop for everything from books to diapers, increasingly go online instead of to the shopping malls. And about half of those online purchases go through Amazon.
Amazon has brought lower prices and unimaginable convenience to consumers. I can buy almost anything I want just by clicking on my phone or computer. And one key ingredient to this success has been Prime, which now tallies 66 million subscribers — equal to roughly 1-in-5 U.S. consumers.
But for all its success, Amazon has yet to generate much in the way of actual profits. The company’s founder and CEO, Jeff Bezos, has been more interested in reinvesting in infrastructure and gaining market share than growing the bottom line.
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On the other hand, Wal-Mart is a much-larger company, with revenues of nearly half a trillion dollars — nearly four times Amazon’s. That scale alone enables it to put a much-bigger squeeze on suppliers than Amazon.
What’s more, Wal-Mart generates a large profit. It’s also a reliable dividend machine: Wal-Mart will pay out dividends of $2.04 per share in 2018, marking the 44th consecutive year of dividend growth.
Conventional thinking has it that there will be a winner and loser in this battle of titans. But that line of thought may be off the mark. That’s because both companies acknowledge that tomorrow’s retail likely will be a blend of online and brick-and-mortar.
As TechCrunch columnist Sarah Perez puts it, “Amazon wants to become Wal-Mart before Wal-Mart can become Amazon.”
But the fact is it may be easier — and cheaper — for Wal-Mart to become Amazon.
Just this week, the company announced its plan to give Amazon’s Alexa voice-assistant technology a run for its money. Wal-Mart said it’s bringing Google’s voice-enabled technology to the online-shopping experience starting in September.
Wal-Mart has already shown that it is willing to spend big on top tech talent when it bought e-commerce firm Jet.com for $3.3 billion back in 2016.
Amazon got some good news this week, as its bid to buy Whole Foods Market (WFM) just received regulatory approval. At the same time, it’s opening its ninth and 10th bookstores. But it will be extremely difficult for Amazon to build enough stores to become a brick-and-mortar powerhouse and still maintain the company’s culture.
But all this expansion may not necessarily result in more jobs …
In fact, it’s been recently reported that Amazon may eliminate more American jobs than China did.
How can that be?
Well, according to a study by economists David Autor, David Dorn and Gordon Hanson, published in the Annual Review of Economics: China’s manufacturing exports to the U.S. may have resulted in the loss of as many as 2 million American jobs.
Wall Street analysts are projecting that, within the next five years, Amazon could capture 40% of the GAFO (General Merchandise, Apparel and Accessories, Furniture and Other Sales) market.
If that happens, about 1.5 million jobs at brick-and-mortar stores could be lost.
Add in the jobs Amazon could eliminate at grocery stores, drugstores, warehouses and delivery services, and the total would be well over 2 million.
And unlike the manufacturing jobs lost to China, which were clustered in a comparatively few states, those retail jobs are located in every city and town in America.
Don’t worry, though. Amazon will pay you a couple of bucks if you’ll use your own car to deliver packages to your neighbors.
It’s in the court of public opinion that Wal-Mart may have a real advantage. Decades ago, the retailer was vilified for decimating communities with bargain-basement consumerism. Now, in an era when consumers pride themselves on buying local to support their community, Amazon is seen as a faceless global entity without roots.
Even Millennials, who you at first blush would think should be overwhelmingly pro-Amazon, show strong support for Wal-Mart.
According to YouGov BrandIndex, Wal-Mart ranks as the fifth favorite brand among Millennial consumers — just one spot behind Amazon and ahead of brands such as Netflix (#6) and Apple (#8).
Community-oriented Millennials realize the value of a company that creates 1.5 million U.S. jobs — and are won over by its ultra-low prices.
In the end, it’s my view that both Amazon and Wal-Mart will thrive and outperform the broader market in the years to come. But don’t be surprised if Wal-Mart eventually emerges on top.
I’ve got both on my buy list for the Safe Money Report Portfolio and will look to establish a position in each when the time is right.
Best wishes,
Bill Hall
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Bill Hall is the editor of the Safe Money Report. He is a Certified Public Accountant (CPA), Chartered Financial Analyst (CFA) and Certified Financial Planner (CFP). Besides his editorial duties with Weiss Research, Bill is the managing director of Plimsoll Mark Capital, a firm that provides financial, tax and investment advice to wealthy families all over the world.
{ 4 comments }
A couple of years ago I heard that Wal-Mart was starting to sell on the internet. I went onto their website and tried it out.
Now I have bought numerous items over the internet, and not just from Amazon, without any big problems.
But the Wal-Mart site baffled me. I gave up trying to buy anything and sent them an e-mail saying as much. As usual, I got zero response and forgot it.
If Wal-Mart, and any other companies, think they can just move onto the internet and start boosting sales that way they are going to get destroyed.
I also had problems with Indigo Books here in Canada. I made suggestions for improvement, but again, I got zero response.
Note: I am retired now but in my past I have a few years of computer systems design. I have been out of it for a number of years, and have been left behind now, but the basics of system design have not changed.
Hello…….
What will happen to the EURO????
I am heavily invested…..per REAL WEALTH……..recommendation….
THANKS!!!!!!!
Marge
About 8-days ago I read an article about Amazon CEO Jeff Bezos is pouring billions of dollars into supporting FAK NEWS outlets in Washington, Oregon and Calif.
Does anybody know what his motive is?? Please add to this subject.
As for me, I can’t trust Amazon so I shop Wal-Mart and Ebay.
Bob
Jeff Bezos will either run for president or be the power behind the throne, a la George Soros.