Wal-Mart – Amazon War: Facts, Stats, Challenges

It is a known fact that Walmart.com has made it its goal to become the number one online merchant, dethroning its major competitor in the e-tail space, Amazon.com, and beating such well-established rivals as Target.com, Overstock.com, and Buy.com. Competition is always war where while some merchants win, and others lose, the consumer always benefits. The service becomes better, the deals sweater, and when it comes to online merchants – the overall user experience improves by getting to a newer, savvier, more personalized level. I am very much intrigued by observing the fight of the giants (all 5 mentioned above), and it has therefore been especially good to see this month’s cover story of the Internet Retailer magazine (which I’ve finished reading while on my plane back from the Affiliate Summit West 2010) devoted to Wal-Mart, and what challenges they are facing while striving to become the number 1 online store, knocking Amazon down. They have some serious questions to resolve, but also some good advantages over competition. Here is my bullet point list of the facts, quotes, and thoughts that I have found to be interest:

• Regardless of Wal-Mart’s ambitions, looking at the 2008 stats, we see that Amazon.com is curretly the Wal-Mart of the Internet, with its online sales exceeding those of Wal-Mart by more than 10 times ($19.17b at Amazon.com vs $1.74b at Walmart.com).
• However, with Wal-Mart’s cumulative (online and offline) sales exceeding $401b in the last fiscal year, the magazine believes we can be talking about Wal-Mart’s stronger buying power – one exceeding that of Amazon by more than 20 times. I do not necessarily agree with this (see my observation on conversion differences below).
• In 2008 Walmart.com had 26.54m visitors versus 54.49m shoppers that visited Amazon.com. The magazine doesn’t talk about it, but a simple look at the sales volume quoted in the first bullet point above, shows that either Wal-Mart is getting a considerably lower click-to-sale conversion (with only 2x difference in traffic volume, Amazon collected 10x more money), or Walmart.com’s AOV is significantly lower than that on Amazon.com. It seems to me that the former explanation is more realistic – especially if we presuppose that a part of Wal-Mart’s offline shoppers visit Walmart.com while researching products, but the money doesn’t get into the register until they show up at their local store.
• Between January and October 2009 Amazon attracted 67m visitors, while Walmart.com saw 32m consumers browse their online inventory (again, roughly a 2x difference). Cyber Monday 2009 stats also show that “Amazon’s traffic was nearly double that of Walmart.com”, and again my thoughts go back to the conversion question. Could it be that the-more-established-in-the-online-sphere Amazon is just beating Walmart.com in conversions (by as much as 5 times)?
• Amazon is obviously beating Walmart.com on the customer satisfaction front (see the ForeSee Results ranking I’ve blogged about here), leaving the latter room for improvement.
• In the price war that Wal-Mart has started with Amazon, Wal-Mart itself is at times facing an uneasy dilemma: cut online prices thereby undercutting brick-n-mortar store visits, or set online prices as higher levels making yourself uncompetitive?
• Walmart.com’s inventory of some 1.5m SKUs is currently significantly smaller than the estimated 10m Amazon’s SKUs. In an effort to overcome this, Walmart.com has planned an interesting move: in August 2010 they have scheduled a launch of Wal-Mart Marketplace, adding merchandise of three other prominent e-tailers to their selection. The agreements are already in place with eBags.com, CSN Stores and Dreams Inc. However, unlike it is the case with Amazon, Wal-Mart will not tolerate competition with itself, and permit the above-quoted three to “offer only items Walmart.com does not sell itself”.
• While Amazon.com is selling Prime accounts where every member can get free 2-day shipping throughout the year at $79/year (Goldman Sachs estimates that some “5% of Amazon shoppers, or about 2-3 million U.S. consumers” are signed up for the Prime, and these 5% “account for perhaps 30% of Amazon’s volume”), Wal-Mart focuses on driving online shoppers to stores by offering a free Site-to-Store shipping option. Again, a clear “tension between web and store channels” can be observed.

Whereas Wal-Mart certainly has the potential to bite a good chunk off Amazon’s pie, I do agree with the Internet Retailer article’s author, Don Davis, that we should not expect Wal-Mart winning this war easily or quickly. The challenges are clear, and it will take Wal-Mart additional tweaking of their overall strategy to succeed on these different fronts. It will certainly be interesting to monitor things as they develop further; and I have no doubt that smaller merchants will be able to learn from both Wal-Mart and Amazon, watching the techniques and strategies employed during the fight. Happy viewing fellow-marketers, and thank you for a good article, Don.