Business Strategy and Outlook| Zain Akbari |
With unrivalled scale, prodigious procurement strength, a strong brand, and a growing e-commerce platform, we believe Walmart is the only American firm that can compete comprehensively with Amazon’s retail offering. We expect shoppers will require retailers to offer a menu of fulfillment options for sales made through digital and physical channels, advantaging Walmart’s dense store network, deep vendor relationships, and established brand.
The retail environment is intensely competitive and is being disrupted by Amazon’s expanding scope and distribution strength, but we expect Walmart to hold serve. With its scale bringing cost leverage that can be used to keep prices low (drawing traffic and spreading fixed expenditures over a larger sales base), Walmart should be able to compete aggressively, particularly for the roughly 50 million households we estimate do not subscribe to Amazon Prime, a proposition solidified by its introduction of the Walmart+ membership program.
With a large share of many of its vendors’ sales, Walmart’s size allows it to dictate terms, enabling it to control procurement costs while ensuring its assortment is optimized for all channels. Its strength translates across borders to its non-U.S. operations. While Amazon is the partner of choice for vendors looking to capitalize on e-commerce’s explosive growth, Walmart is the most valuable outlet for top manufacturers in terms of dollar sales, which should remain a formidable cost advantage.
While we believe its days of material domestic store count growth have passed, Walmart has redirected capital toward development of its global omnichannel capabilities (organically and through acquisitions). We view its efforts positively and suspect it has built an infrastructure that should support average digital percentage growth well into the double-digits for years to come. Traditional channel growth should be hard to come by, but we suspect Walmart’s robust grocery offering will promote traffic, feeding its ability to leverage costs and investments in automation and infrastructure.