Should Walmart (WMT) Be Worried About Amazon (AMZN)?

avatar By: IS
Date posted: 07.29.2011 (5:00 am) | Write a Comment  (0 Comments)

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Would it be a stretch to think that as retail shopping slowly moves from physical locations to digital ones, giant Walmart (WMT) is starting to feel the heat from Amazon (AMZN) ? Perhaps, but I think these two companies will be facing off increasingly in the coming years and it’s not a surprise that Walmart is among those that have been lobbying for Amazon’s tax status to be changed. Does it see in Amazon a credible threat? Or is Walmart getting ready to crush Amazon? I am personally very bullish on Amazon’s long term value and find this developing rivalry fascinating.

How Is Amazon Facing Off With Walmart?

-Distribution network: In terms of distribution, both Amazon and Walmart are world class organizations. Amazon has by far the best network for ecommerce retailers with shipping and storage all over the US and in many parts around the world. In terms of virtual storage and distribution, Amazon’s s data services, AWS are arguably the best out there and is becoming a major player with clients such as Zynga and Netflix (NFLX) using Amazon’s services. I don’t think anyone could beat Walmart’s incredible distribution network as it has stores in thousands of neighborhoods.

-Suppliers Relationships: Both Amazon and Walmart have a lot of power with suppliers. Simply put, having products sold at Walmart is the difference between a healthy business and one that isn’t sustainable. That gives Walmart incredible power when it negotiates prices. In a similar way, selling digital or physical products through Amazon is the place you need to be to sell on the internet. To be fair, while Walmart sells millions of different products, while, up until a few years ago, Amazon was mostly about books and dvd’s. That has been changing fast though as Amazon expands into all kinds of different products from gardening to electronics and cloths. It has been launching several fashion websites to accompany Zappos, its leading shoe and clothes e-retailer.

-Prices: No one can beat Walmart right? That is probably true. But with few employees, limited storage and land costs, Amazon is basically limited by shipping only. As it tries different experiments such as delivering groceries and other products, it will be interesting to see how that impacts the prices that Amazon will be able to offer.

-Sales Taxes: Those low prices are helped in a big way by the way Amazon operates which helps it avoid sales taxes in much of the United States, an incredible difference, especially for larger items such as tv’s. It’s unclear how Amazon’s current feud with a few states will end up but I think it’s fair to say that the longer Amazon can keep this situation going, the bigger it can build its distribution network and market share. The main law that Amazon relies on is the fact that companies that do not have a physical presence are not required to charge sales taxes to their customers.

-New Economy: As a growing part of the economy moves to digital such as apps, virtual books, digital services, Amazon seems incredibly well located in the market with app stores, an established ebook reader (Kindle) poised to become a tablet, and other services. Those will help Amazon keep up solid growth rates for years to come.

-Reinvesting: Few companies apart from Google and Apple have been putting up so much money to improve their companies. For Amazon’s that translates mostly into new niche websites, storage and shipping facilities, improved technology, and virtual services.

-Shopping Experience: Running around trying to find items in large stores is still appreciated by many but doing shopping from the comfort of their own homes is certainly becoming a very appreciated experience. Ecommerce has made holiday shopping a lot less stressful for example and as the years go by, the Amazon shopping experience has been getting better. Can Walmart compete?

Amazon vs. Walmart, The Real Deal?

While I don’t expect these two to knock heads right now, they will increasingly face off as Amazon continues to make strides. Amazon is destined for greatness in my opinion and even being compared to Walmart is a sign of how much Amazon has already done in its sector.

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