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Amazon.com challenges Wal-Mart, one click at a time

by Bottom Line /  / Updated 

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Amazon.com has taken on and beaten much of the retail world. Now it’s aiming for the biggest retailer of them all: Wal-Mart.

Five years ago only about one quarter of Wal-Mart’s customers also shopped online at Amazon.com, the world’s biggest web store. Now half of Wal-Mart shoppers say they also shop online at Amazon, and that’s a potential problem for Wal-Mart, according to new research from retail analysts at Kantar Retail.

The gloomy forecast for Wal-Mart comes as the retail giant gears up to celebrate its 50th anniversary in July. Wal-Mart has pioneered mass retailing in physical stores. Amazon is pulling off a similar revolution within online commerce. To maintain its leadership position, Kantar says Wal-Mart should become an urban pioneer and e-commerce leader.

“If the trend continues, with Amazon up and Wal-Mart down, by the 2012 holiday season Amazon could well be the most shopped retailer,” said Anne Zybowski, a Kantar analyst.

When it come size, there’s no question that Wal-Mart still towers over Amazon, with $419 billion in revenue in its most recent fiscal year, compared with $48 billion for Amazon. But Amazon is growing rapidly, while Wal-Mart is showing all the signs of maturity.

The online mall’s revenue increased 40.6 percent in its most recent fiscal year, compared with growth of 3.4 percent at Wal-Mart. Amazon’s shares have jumped 15.4 percent since the beginning of the year, while Wal-Mart has seen its share price rise 2.9 percent.

Zybowski notes that the world of retail is changing, and it’s having a direct impact on Wal-Mart. The retailer’s traditional customers -- typically price-conscious consumers making less than $50,000 a year -- are migrating online and increasingly looking there for bargains, she said. At the same time, more affluent shoppers who turned to low-cost retailers during the recession are discovering Amazon.com’s bargain prices.

“There’s a misconception out there that Wal-Mart is just for low-income customers,” Zybowski said.

A turning point will come this holiday season when Wal-Mart’s dominance in retailing will come under threat, Zybowski reckons.

Wal-Mart was the top destination for holiday shoppers last year, with 53 percent of consumers shopping there. But that was down from 59 percent in 2009. Over the same three-year period, the percentage of consumers doing holiday shopping at Amazon rose to 46 percent from 38 percent three years previously, according to Kantar Retail ShopperScape data. By the time the 2012 holiday season is over Amazon could be crowned the holiday retail leader.

Amazon’s strength is its drive to turn holiday shoppers, who tend to purchase discretionary items, to “everyday” shoppers, buying everything from dog food to paper towels.

Amazon is working to generate “sticky” behavior amongst shoppers, Zybowski said. It has been able to turn holiday traffic one-time purchases into monthly sales, and while weekly shopping is something most often associated with grocery shopping, many Amazon shoppers are now weekly shoppers, she said.

Amazon got started by selling such products as books and consumer electronics. It's now focused on providing convenience in selling products, such as diapers or breakfast cereal, that used to require repeat trips to a physical store. Wal-Mart has typically sold these products in bulk.

Wal-Mart’s online operations have lagged those of its brick-and-mortar rivals for many years, but lately the company has made an effort to improve its offering.

Since last May the retailing giant has spent over $300 million acquiring online companies to build a talent base and expertise at @WalmartLabs, an initiative where the company is building its interactive experience.

A challenge for all online retailers is managing the expectations of consumers who now expect the same brand experience across all platforms -- in the store, or online, Zybowski said. In this regard, both Amazon and Wal-Mart will have to push to find efficiencies in the supply chain. For its part, Amazon recently paid $775 million for Kiva Systems, a maker of robots that move items around in warehouses.

“Wal-Mart pushed everyone in retail toward the world of massive stores and products in bulk, toward economies of scale and full truck loads,” she said. “But those efficiencies won’t necessarily work in a direct-to-consumer environment like e-commerce, so everyone is testing how they can manage the cost of transporting products along the last mile to the consumer.”

Can Amazon surpass Wal-Mart? Discuss it on our Facebook page.

Zybowski

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