Business Strategies Advantages of Walmart & Amazon Case Study WALMART/AMAZON CASE STUDY ASSIGNMENT Walmart has been the major player in discount retailing

Business Strategies Advantages of Walmart & Amazon Case Study WALMART/AMAZON CASE STUDY ASSIGNMENT

Walmart has been the major player in discount retailing for decades with its vast number of physical stores distributed across both rural and urban areas in the United States. Amazon has been the major player in online retailing and has had dramatic growth in recent years. After struggling for decades to develop their own online retailing business, Walmart purchased Jet.com in 2016 which provided Walmart with important expertise in, and constituted a significant commitment to, online retailing. In 2017, Amazon purchased Whole Foods which included 460 brick-and-mortar grocery stores. These acquisitions clearly signaled competition between Walmart and Amazon in both in-store grocery sales and on-line grocery, as well as merchandise, sales.

Your 500 words analysis of the case study entitled “Walmart’s Omnichannel Strategy: Revolution or Miscalculation?“ should address the following issues/questions.

What are the comparative advantages of Walmart and Amazon and how will these comparative advantages affect the payoffs from their different strategic decisions?
Discuss the strategic interaction between Walmart and Amazon. Why did Walmart think it necessary to enter the on-line retailing industry and why did Amazon think it beneficial to have a brick-and-mortar grocery store presence? Did Walmart decision influence Amazon’s decision and vice versa?
How do the payoffs from their possible strategic decisions depend on the types of customer who are more likely to select purchases from Walmart over Amazon and purchases from Amazon over Walmart? When considering types of customers think in terms of different demographics and geographic location (rural versus urban for example).
Why do both Walmart and Amazon consider it important to have both brick and mortar stores and a significant on-line presence?

While I do not want you to necessarily discuss the question below in your writeup (unless you want to), I think it is important to think about the competition between Walmart and Amazon in the short run and long run.

Is Walmart or Amazon currently in a stronger strategic position? Who will be in a stronger position in 10 years? What important strategic decisions will Walmart and Amazon have to make in the future?

To complete this assignment, please carefully read the case study. To gain additional knowledge on the strategic decisions of Walmart and Amazon, feel free to read some of the over 300 articles cited in the case study (some are very interesting and provide additional details not contained in the case study), as well as any other sources you find (make sure you appropriately cite these other sources and do not plagiarize). I expect your 500 word writeup to be your thoughts in regards to the strategic interaction between Walmart and Amazon – I am not interested in quotes from others.

Thoughts:

The strategic interaction between Walmart and Amazon is too complicated to analyze using the basic game theoretic tools discussed in class to date. Therefore, I would suggest not presenting some normal form game or some basic extensive form game in your write up.
I realize this assignment is somewhat open ended and students will have very different writeups – which is great. This assignment is about synthesizing a large amount of information on a complicated strategic environment and then present a coherent analysis on the strategic alternatives available to Walmart and Amazon. and the tradeoffs associated with these strategic alternatives. The next two case studies assignments will be much more narrow in terms of the write up and will relate to specific game theoretic material discussed in class. For the exclusive use of J. Zhang, 2020.
9 -7 2 0 -3 7 0
AUGUST 28, 2019
RAMON CASADESUS-MASANELL
KAREN ELTERMAN
Walmart’s Omnichannel Strategy: Revolution or
Miscalculation?
At a 2018 investors’ meeting, Walmart CEO Doug McMillon laid out his vision for Walmart’s future,
stating, “We have unique assets that will allow us to win in an omnichannel world, and we believe that
is the winning model.” McMillon, along with Marc Lore, President and CEO of Walmart US
ecommerce, and Greg Foran, President and CEO of Walmart US—who was in charge of operations for
all Walmart stores—stressed the importance of serving the Walmart customer no matter “when, how,
or where” that customer wanted to engage with the company. 1 This omnichannel approach entailed
pursuing three channels simultaneously: traditional in-store sales, web to home delivery, and web
ordering with customer pickup in store. The company was especially focused on using its store
footprint to launch and dramatically scale grocery pickup and delivery. The challenge would be for
Walmart to maintain its leadership in brick-and-mortar sales while also going head to head with online
retailers like its behemoth rival, Amazon.
In 2018, Walmart remained the biggest retailer in both the US and the world, with revenues of $514.4
billion, a operating income of $22 billion, 2 and over 2.2 million employees worldwide. 3, 4 The company,
founded in 1962, had been on a more-or-less steady growth trajectory—in terms of both revenues and
profits—for over fifty years. 5 Its 2018 revenues, for example, represented a nearly 27% increase from
its revenues of $405.6 billion ten years before. 6, b In contrast, Amazon, founded in 1994, did not make
its first yearly profit until 2003, when it had a net income of $35 million and revenues of $5.3 billion. 7
In 2018, it had revenues of $232.9 billion, up over 1000% from $19.2 billion ten years before, and
operating income of $12.4 billion. 8 (See Exhibit 1 for a comparison of Walmart and Amazon’s revenues,
operating income, and market cap over time, and Exhibit 2a for their year over year revenue growth.)
In July 2018, Amazon accounted for about 49% of all online retail sales in the US, compared to only
3.7% for Walmart. 9, 10 Moreover, in September 2018, Amazon’s valuation had reached $1 trillion, 11
compared to $282 billion for Walmart. 12 Its founder, Jeff Bezos, had a net worth of $105 billion. 13
However, in recent years, Walmart’s ecommerce growth had significantly outplaced that of Amazon.
a Many annual figures in this case are estimated based on Walmart’s fiscal years, which end on January 31 of the following calendar
year. For example, the 2018 figure given here is actually for the twelve months ended January 31, 2019 (Walmart’s FY 2019).
b Figure is for the twelve months ended January 31, 2009 (Walmart’s FY 2009).
Professor Ramon Casadesus-Masanell and Research Associate Karen Elterman prepared this case. The Company cooperated and provided
information to HBS in connection with the preparation of this case. Funding for the development of this case was provided by Harvard Business
School and not by the company. HBS cases are developed solely as the basis for class discussion. Cases are not intended to serve as endorsements,
sources of primary data, or illustrations of effective or ineffective management.
Copyright © 2019 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800-545-7685,
write Harvard Business School Publishing, Boston, MA 02163, or go to www.hbsp.harvard.edu. This publication may not be digitized, photocopied,
or otherwise reproduced, posted, or transmitted, without the permission of Harvard Business School.
This document is authorized for use only by Jiahao Zhang in Walmart-Amazon taught by Michael Conlin, Michigan State University from Mar 2020 to Sep 2020.
For the exclusive use of J. Zhang, 2020.
720-370
Walmart’s Omnichannel Strategy: Revolution or Miscalculation?
(See Exhibit 2b for a comparison of Walmart and Amazon’s US and North American quarterly
ecommerce growth, 2017-2018.)
Walmart was ready to embrace change in the face of an increasingly digital world. But was
omnichannel really the right response? In web to home sales, Walmart would have to compete with
Amazon on product selection, shipping costs, and delivery times—no easy task. Could Walmart
maintain its leadership position in stores while also facing the logistics and distribution challenges that
came with home delivery and keeping up with the ever-shifting goalposts of its rival? At the
presentation, Foran stressed Walmart’s personal relationship to customers, calling special attention to
Walmart’s grocery business as the place where the company held a significant advantage. But how
could Walmart leverage that advantage when serving customers online?
Walmart.com – Early Development
When it acquired Jet.com in 2016, twenty years after launching its ecommerce business, Walmart
held only a small share of the ecommerce market. In the first decade of the 2000s, the company had
attempted a number of online initiatives—such as a music downloading business 14 and an online DVD
rental service—that failed to take off. 15, 16 It had even experimented with a social networking site for
teens. 17 In 2016, Walmart had global revenues of $485.9 billion, c compared to only $136 billion for
Amazon, 18 but Walmart’s global ecommerce sales of $15.32 billion 19 paled in comparison to Amazon’s
$91.43 billion. 20, d (See Exhibit 3 for Walmart and Amazon’s market share in 2016.)
Walmart first launched websites for Walmart and Sam’s Club in 1996. 21 However, early versions of
the sites were difficult to navigate and had poor search capabilities. 22 In January 2000, Walmart spun
off Walmart.com as a separate entity with its own board of directors and management team. 23 The new
company relaunched the site, giving it a cleaner and more user-friendly interface. 24, 25 In July 2001,
Walmart bought back Walmart.com, though its 300 workers remained in Silicon Valley. 26 A Walmart
executive who was with Walmart in 2001 recalled the buyback, noting, “There were probably people
thinking, ‘That’s too bad, we joined Walmart.com, we were going to have an IPO. I’m no longer going
to be an internet millionaire.’ But really, this was a smart move for bringing digital and physical
together. At least, on paper this was a smart move, but it came down to execution. That’s where there
continued to be tension.” 27
For example, early in the development of Walmart.com, the ecommerce team suggested that store
associates share information about the website with customers in stores. However, management was
hesitant to adopt this plan. Fears of store cannibalization made them skeptical of driving customers to
the web. 28 At the time, store managers were rewarded for sales in their department, and were focused
on optimizing their space within the store. They worried about splitting the budget with ecommerce.
The executive explained, “It really came down to what was most immediate and where we would be
rewarded fastest and biggest, and that was through the stores channel. That persisted for a long time.” 29
Eventually, however, Walmart.com gained traction with its Site to Store service, first launched in
2007, which offered free shipping of online orders to Walmart stores within 7-10 days. 30 By 2009, Site
to Store orders represented about 40% of Walmart’s online sales. 31 Nevertheless, Walmart.com took in
only $2.5 billion, or about 0.6% of Walmart’s total revenue, that year. e, 32 Despite growing competition
c Figure is for Walmart’s 2017 fiscal year ending January 31, 2017.
d Excludes Amazon Web Services, advertising services, and credit card agreements.
e Analyst estimate. Walmart did not release separate data for online sales.
2
This document is authorized for use only by Jiahao Zhang in Walmart-Amazon taught by Michael Conlin, Michigan State University from Mar 2020 to Sep 2020.
For the exclusive use of J. Zhang, 2020.
Walmart’s Omnichannel Strategy: Revolution or Miscalculation?
720-370
with Amazon (which in July 2009 had 67 million unique monthly visitors, compared to 33 million for
Walmart.com), 33 Walmart executives remained skeptical of Amazon’s value proposition. They noted
Amazon’s lack of profits and assumed that its business model was unsustainable. 34 Walmart stores
generally made about 6% margins, which would not be possible with the shipping costs of
ecommerce. 35 As Marc Lore, former founder and CEO of Jet.com and head of Walmart US ecommerce
in 2018, noted, “In brick and mortar, if you aren’t making money within a year, it’s over. In an
ecommerce venture, on the other hand, profitability could take ten years to materialize.” 36
In February 2010, Walmart acquired the online streaming service VUDU. 37 In 2011, it acquired the
search engine Kosmix, run by two former Amazon executives, for $300 million, and created the
digitally-focused Walmart Labs. 38 It also hired Jeremy King, an engineer who had built much of the
infrastructure for eBay, as CTO of Walmart.com. 39 In January 2012, Neil Ashe (previously president of
CBS Interactive, the online content network of CBS Corporation) was hired as president and CEO of
Global Ecommerce. 40 Ashe and his team led a major overhaul project called Pangaea, in which they
made significant changes to Walmart’s website and underlying transaction software, improved its
databases and servers, and introduced smartphone apps. 41, 42 Over the next several years, the company
also built six campuses with fully-automated ecommerce fulfillment centers, 43 including in Texas,
Pennsylvania, Indiana, and Georgia. 44
In 2014, Doug McMillon became president and CEO of Walmart after leading its international
division for five years and Sam’s Club for three and a half years prior. 45 All told, he had already spent
more than two decades at Walmart, doing everything from unloading trucks to buying sportswear. 46
As CEO, McMillon promoted innovation and championed an omnichannel strategy. He wanted not
only to improve the website, but to combine the benefits of Walmart’s online business with its vast
physical resources, developing initiatives such as home delivery and in-store pickup. 47 McMillon
significantly increased investment in ecommerce. 48 He also appointed Greg Foran, who had previously
spent thirty years with Woolworths in Australia, to head Walmart’s US stores. Together, McMillon and
Foran raised the minimum wage for Walmart’s store associates and worked with store managers to
improve the cleanliness, speed, and in-stock percentages of the stores. 49
McMillon once told an interviewer, “The startup thing sounds cool. […] [But] if you want a
challenge, try to take a 52-year-old business that’s this size and change it.” 50 McMillon had many
believers within Walmart, but he had his work cut out for him in trying to align everyone in the
business to his mission. A Walmart executive recalled, “That first year we engaged the top 40 to 50
leaders in the company, soaked them in the data, and made them realize we weren’t going to win
unless we won in ecommerce.” 51 Although most of these leaders were convinced by the data, some
people in the company remained doubtful of the importance of the online business. The executive
added, “We kept saying, ‘We’re losing ground,’ but people in the stores didn’t believe it. Stores were
growing, and ecommerce was growing, so how could we be losing?” 52 (See Exhibit 4.)
The Marketplace
Although Walmart launched an online marketplace in 2009, management was initially hesitant to
expand its third-party offerings. 53 For years, Walmart’s marketplace had only six sellers, f, 54 while
Amazon’s marketplace had over 1.8 million sellers in 2009. 55 In 2014, when McMillon and his team
worked to expand the company’s ecommerce selection, 56 they found that the website did not have the
technology to scale above 1 million items. Thus, under Ashe and King (then CEO and CTO of
ecommerce, respectively), the company had to revamp its entire ecommerce platform. 57 By June 2015,
f eBags, Wayfair, Tool King, Plumstruck (part of Hayneedle), ShoeBuy.com, and ProTeam.
3
This document is authorized for use only by Jiahao Zhang in Walmart-Amazon taught by Michael Conlin, Michigan State University from Mar 2020 to Sep 2020.
For the exclusive use of J. Zhang, 2020.
720-370
Walmart’s Omnichannel Strategy: Revolution or Miscalculation?
Walmart.com carried 10 million SKUs from third-party vendors and 1.5 million SKUs from Walmart. 58
By April 2016, the site included 300 third-party sellers, and by December 2016, that number had
climbed to 1000, 59 compared to 2 million on Amazon. 60 In April 2017, Walmart’s marketplace offered
about 38 million SKUs, 61 and by November 2017, this figure was up to 70 million, compared to about
400 million on Amazon. 62 By the end of 2018, Walmart.com offered 75 million SKUs though its
marketplace and direct sales combined, 63 compared to over 500 million SKUs for Amazon. 64 Despite
its growing marketplace, Walmart saw the management of first-party inventory as a core competence. 65
In March 2017, McMillon stressed, “When you own the inventory, you control the customer experience
more effectively. It feels to me like this rapid expansion of enormous assortment is going to run its
course. There are only so many items in the world.” 66
Grocery: The Next Battlefront in Ecommerce
One of McMillon’s main goals was to leverage Walmart’s unique advantage in grocery to grow its
omnichannel business. While Amazon had become the clear leader in ecommerce for general
merchandise, it—like numerous other companies—had failed to gain widespread traction in grocery
pickup and delivery. In the US, grocery was the second biggest retail product category by sales (after
automotive), 67 but it was also the least penetrated category of ecommerce, 68 representing just 2.8% of
all retail ecommerce sales. 69 (See Exhibit 5 for ecommerce share of total US retail revenue by product
category in 2018 and for selected categories in 2011, 2016, and 2021.) However, the online grocery
market was quickly growing. One study found that, in 2018, about 48% of US grocery shoppers
purchased at least some of their groceries online, and 59% of shoppers planned to do so in 2019. 70 In
2018, online grocery spending accounted for about 5.5% of total grocery spending in the US, 71 a figure
that was expected to rise to 20% (or $103 billion) by 2025. 72 Nevertheless, as of a May 2018 survey,
consumers were still more likely to buy groceries in store than any other product category. 73 (See
Exhibit 6 for preference of in-store purchase by product category, 2018.)
In 2018, Walmart remained the leading grocery retailer in the US, with US food and beverage
grocery sales g of approximately $146.5 billion, or 21.1% of the market. 74 Groceries comprised about
55% of Walmart’s total sales. 75 In terms of food and beverage grocery market share, its second-place
rival was Kroger (11.1%), followed by Albertson’s/Safeway (6.8%) and Costco (6.4%). Amazon/Whole
Foods held about 3.7% of the US food and beverage market, or $25.4 billion, in 2018. 76 Walmart
operated a total of over 5,000 US stores (including Sam’s Clubs), compared to only about 450 for
Amazon and Whole Foods. 77 4,600 of these stores acted as fulfillment centers for Walmart’s online
grocery business. 78 The majority of Whole Foods stores (82%) faced competition from a nearby
Walmart, whereas only 25% of Walmart supercenters had a Whole Foods store within a 10 mile
radius. 79 In 2017, Amazon comprised about 12.5% of US online grocery sales, while Walmart accounted
for about 11.1% of the online market. 80 By October 2018, however, Walmart held about 13.5% of the US
online grocery market, compared to approximately 14% for Amazon. 81 Analysts predicted that it
would surpass Amazon by the end of the year. 82 Moreover, a survey by the Retail Feedback Group
found that in 2018, 33% of online grocery shoppers had made their most recent online grocery purchase
from Walmart, up from 26% in 2017, while only 31% had made theirs at Amazon, down from 36% in
2017. 83
In 2014, Walmart launched two pilot programs for next-day delivery of online grocery orders. 84
However, by 2015, it had dropped the delivery program in favor of order online, pick up in store,
deciding that there was not yet enough density to make lost-cost delivery viable. 85 By the end of 2015,
Walmart offered grocery pickup at 100 stores 86 (that is, about 2.6% of its US discount
g Excludes consumables
4
This document is authorized for use only by Jiahao Zhang in Walmart-Amazon taught by Michael Conlin, Michigan State University from Mar 2020 to Sep 2020.
For the exclusive use of J. Zhang, 2020.
Walmart’s Omnichannel Strategy: Revolution or Miscalculation?
720-370
stores/supercenters). 87 It also offered general merchandise pickup. 88 In 2018, Walmart relaunched
grocery delivery. By the end of the year, approximately 1,200 Walmart stores offered same-day grocery
delivery, 89 with delivery fees of $9.95 or less per order. 90 Moreover, 2,100 stores offered free curbside
grocery pickup, a number that was expected to reach 3,100 by the end of 2019. 91 In June 2019, Walmart
began testing a subscription service for unlimited grocery delivery. 92 The service, which cost $98
annually or $12.95 monthly, provided unlimited same-day grocery delivery for orders of $30 or more, 93
with no per-order fee. 94 It was first piloted in Houston, Salt Lake City, Miami, and Tampa. 95
Jet.com and Other Acquisitions
Jet.com was founded in 2014 by Marc Lore, along with cofounders Mike Hanrahan and Nate Faust
(HBS MBA ’08). 96 In 2005, Lore had co-founded the specialty online retailer Diapers.com and its parent
company Quidsi, 97 which at one point had four times the sales of Amazon in diapers alone. 98 In 2011,
Amazon purchased Quidsi for $500 million. 99 Lore worked at Amazon for two and a half years before
founding Jet in April 2014. 100, 101 Jet was founded in Montclair, NJ, but soon moved to Hoboken, NJ. 102
(See Exhibit 7 for images of Jet’s headquarters.) The website officially launched in July 2015, as both a
first-party e-retailer and a marketplace. 103, 104 Jet’s smart cart tool allowed customers to influence the
price of items in their cart based on how their shopping decisions affected the company’s costs. For
example, customers could save money by committing ahead of time to no returns, by using a certain
type of credit card, or by adding items to the cart that were stored in the same warehouse. Savings
increased as the size of the cart grew. 105 In September 2015, a price study of 50 identical SKUs found
the Jet.com basket to be 3.4% cheaper than Amazon Prime, before taking the effects of the smart cart
into account. 106
In its marketing and branding, Jet was targeted toward millennials and younger shoppers. 107
Initially, Jet.com charged a $50 yearly membership fee similar to that of a warehouse club like Costco,
but it dropped this fee a few months into operations. 108 By early 2016, with only 500 employees, Jet.com
was valued at $1.5 billion. 109,110 It sold everything from TVs to toys and food, including fresh groceries
in some markets. 111 In total, Jet sold more than 12 million products, with about two thirds of those
supplied by its network of over 2,000 third-party vendors. 112 In February 2016, it acquired Hayneedle,
an online furniture and home goods store. 113
In 2016, Walmart’s executive team began to discuss the possibility of buying Jet. Walmart.com and
the grocery pickup business were gaining momentum, but, in looking at the gap with Amazon,
McMillon knew that Walmart needed to integrate ecommerce and stores even f…
Purchase answer to see full
attachment