Business Problem Solving Case Walmart Amazon Duke E Commerce Supremacy Walmart World S Lar Q28485026

Business Problem-Solving Case Walmart and Amazon Duke It Out forE-Commerce Supremacy Walmart is the world’s largest and mostsuccessful retailer, with $487.5 billion in 2014 sales and nearly11,000 stores worldwide, including more than 4,000 in the UnitedStates. Walmart has 2.2 million employees and ranks first on theFortune 500 list of companies. Walmart had such a large andpowerful selling machine that it really didn’t have any seriouscompetitors—until now.

Today, Walmart’s greatest threat is Amazon.com, often called theWalmart of the web. Amazon sells not only books but just abouteverything else people want to buy—DVDs, video, and music streamingdownloads, software, video games, electronics, apparel, furniture,food, toys, and jewelry. The company also produces consumerelectronics, notably the Amazon Kindle e-book reader and KindleFire tablet and Amazon Fire smartphone. No other online retailercan match Amazon’s breadth of selection; low prices; and fast,reliable shipping.

For many years, Amazon has been the world’s largest e-commerceretailer with the world’s largest and most powerful online sellingmachine. Moreover, Amazon has changed the habits and expectationsof consumers in ways to which Walmart and other retailers mustadapt. Instead of a push model, by which merchandisers have a largedegree of control of what items they stock and sell, retailers mustadapt to a pull model, by which shoppers are more empowered thanever. According to Brian Yarbrough, a retail analyst at EdwardJones in St. Louis, Amazon and online retailing is probably thebiggest disrupter of retail since Walmart itself.

Walmart was founded as a traditional, off-line, physical storein 1962, and that’s still what it does best. However, it is beingforced to compete in e-commerce as well. Six or seven years ago,only one-fourth of all Walmart customers shopped at Amazon.com,according to data from researcher Kantar Retail. Today, however,half of Walmart customers say they’ve shopped at both retailers.Online competition and the profits to be reaped from e-commercehave become too tough to ignore.

Walmart’s traditional customers—who are primarily bargainhunters making less than $50,000 per year—are becoming morecomfortable using technology. More-affluent customers who startedshopping at Walmart during the recession are returning to Amazon astheir finances improve. Amazon has started stocking merchandisecategories that Walmart traditionally sold, such as vacuum bags,diapers, and apparel, and its revenue is growing much faster thanWalmart’s. In 2014, Amazon had sales of nearly $89 billion.

If more people want to do even some of their shopping online,Amazon has some clear-cut advantages. It has created a recognizableand highly successful brand in online retailing. The company hasdeveloped extensive warehousing facilities and an extremelyefficient distribution network specifically designed for webshopping. Its premium shipping service, Amazon Prime, providesfast, free two-day shipping at an affordable fixed annualsubscription price ($99 per year), often considered to be a weakpoint for online retailers. According to the Wall Street Journal,Amazon’s shipping costs are lower than Walmart’s, ranging from $3to $4 per package, while Walmart’s online shipping can run $5 to $7per parcel. Walmart’s massive supply chain needs to support morethan 4000 physical stores worldwide, which Amazon doesn’t have toworry about. Shipping costs can make a big difference for a storelike Walmart, where popular purchases tend to be low-cost itemssuch as $10 packs of underwear. It makes no sense for Walmart tocreate a duplicate supply chain for e-commerce.

However, Walmart is no pushover. It is an even larger and morerecognizable brand than Amazon. Consumers associate Walmart withthe lowest price, which Walmart has the flexibility to offer on anygiven item because of its size. The company can lose money sellinga hot product at extremely low margins and expect to make money onthe strength of the large quantities of other items it sells.Walmart also has a significant physical presence, and its storesprovide the instant gratification of shopping, buying an item, andtaking it home immediately as opposed to waiting when ordering fromAmazon. Two-thirds of the U.S. population is within five miles of aWalmart store, according to company management.

Walmart has steadily increased its investment in its onlinebusiness, spending between $1.2 billion and $1.5 billion annuallyin 2015 and the next few years on e-commerce, including fulfillmentcenters and technology. Walmart’s e-commerce business now employsabout 2,500 people. Walmart has constructed one of the world’slargest private cloud computing centers, which provides thecomputing horsepower for Walmart to increase the number of itemsavailable for sale on Walmart.com from 1 million three years ago to10 million today. In spring 2015, the company opened four newfulfillment centers around the country, each of which is more than1 million square feet. To counter Amazon further, Walmart ispreparing to introduce its own version of a free delivery servicefor premium customers similar to Amazon Prime.

New technology will also give Walmart more expertise inimproving the product recommendations for web visitors toWalmart.com, using smartphones as a marketing channel, andpersonalizing the shopping experience. Walmart has been steadilyadding new applications to its mobile and online shopping channelsand is expanding its integration with social networks such asPinterest.

A Pay With Cash program enables the 25 percent of Walmartcustomers who don’t have credit cards or bank accounts to ordertheir products online and then pay for them in cash at theirnearest Walmart store. Walmart’s online and digital developmentdivision, @WalmartLabs, acquired the recipe technology start-upYumprint to expand its online grocery delivery services. Managementhopes that Yumprint will help Walmart customers make shopping listsmore easily from recipes they find in Yumprint before they shop.The company also hired former eBay executive Jamie Iannone tomanage the integration of the Sam’s Club’s website with Walmart’sglobal e-commerce unit.

Walmart is also trying to improve links among its storeinventory, website, and mobile phone apps so that more customerscan order online and pick up their purchases at stores. Shopperscan order items online and pick them up from lockers in localstores without waiting in line. Walmart’s lockers are similar toAmazon’s recent deal with Staples and 7-Eleven to do the same. Theidea is to be able to offer Walmart products anywhere a consumerprefers to shop, whether that’s online, in stores, or on thephone.

The company is rethinking its in-store experience to draw morepeople into its stores. More than half of Walmart customers ownsmartphones. Walmart has designed its mobile app to maximizeWalmart’s advantage over Amazon: its physical locations. About 140million people visit a Walmart store each week. The company startedtesting the app’s in-store mode, which detects when a customer isin a physical store. When the mode is activated, customers cancheck their wish lists, locate items of interest in the store, andsee local promotions. The app’s Scan & Go feature letscustomers scan items as they shop so they can move quickly throughself-checkout. Shoppers can add items to their lists by voice or byscanning bar codes.

The Walmart website uses software to monitor prices at competingretailers in real time and lower its online prices if necessary.The company is also doubling inventory sold from third-partyretailers in its online marketplace and tracking patterns in searchand social media data to help it select more trendy products. Thisstrikes directly at Amazon’s third-party marketplace, whichaccounts for a significant revenue stream for Amazon. In addition,Walmart is expanding its online offerings to include upscale itemssuch as $146 Nike sunglasses and wine refrigerators costing morethan $2,500 to attract customers who never set foot in a Walmartstore.

Walmart’s commitment to e-commerce is not designed to replicateAmazon’s business model. Instead, CEO Doug McMillon is crafting astrategy that gives consumers the best of both worlds— anomnichannel approach to retailing. Walmart’s management believesthe company’s advantage is that it is not a pure-play e-commerceretailer and that customers want some real interaction withphysical stores as well as digital contact. Walmart will sellvigorously through the web and in its physical stores, retainingits hallmark everyday low prices and wide product assortment inboth channels and using its large network of stores as distributionpoints. Walmart will closely integrate online shopping andfulfillment with its physical stores so that customers can shophowever they want, whether it’s ordering on their mobile phones forhome delivery, through in-store pickup, or by wandering down theaisles of a Walmart superstore. Walmart is aiming to be the world’sbiggest omnichannel retailer. A

mazon is working on expanding its selection of goods to be asexhaustive as Walmart’s. Amazon has allowed third-party sellers tosell goods through its website for a number of years, and it hasdramatically expanded product selection through acquisitions suchas its 2009 purchase of online shoe-shopping site Zappos.com togive Amazon an edge in footwear.

On June 18, 2014, Amazon announced its own Fire Phone to providea better mobile platform for selling its products and servicesonline. Users can scroll through web or book pages just by tiltingthe device or quickly navigate menus, access shortcuts, and viewnotifications. Mayday is a 24-hour customer support service forusers of Amazon’s devices, offering one-tap access to Amazoncustomer service agents who can talk to phone users by video chatand take over the screen on their devices to show them exactly howto do something. To date, the Fire Phone has not lived up toexpectations.

Amazon continues to build more fulfillment centers closer tourban centers and expand its same-day delivery services, and it hasa supply chain optimized for online commerce that Walmart justcan’t match. Nevertheless, Walmart has thousands of stores inalmost every neighborhood that Amazon won’t ever be able toreplicate. The winner of this epic struggle will be which companyleverages its advantage better. Walmart’s technology initiativelooks promising, but it still has work to do before its localstores are anything more than local stores. Can Walmartsuccessfully move to an omnichannel strategy and successfullycompete in e-commerce?

Case Study Questions

10-15 Analyze Walmart and Amazon.com, using the competitiveforces and value chain models.

10-16 Compare Walmart’s and Amazon’s business models andbusiness strategies.

10-17 What role does information technology play in each ofthese businesses? How is it helping them refine their businessstrategies?

10-18 Will Walmart be successful against Amazon.com? Explainyour answer.