Since 2020, Amazon (AMZN +1.04%) and Walmart (WMT +2.88%) have seen substantial benefits from shifting consumer trends toward e-commerce due to the pandemic. However, pandemic tailwinds for e-commerce have now changed to headwinds, and both are managing the negative financial impacts of COVID-19: high inflation, rising interest rates, and the increased threat of a recession.
Although many people consider Amazon and Walmart a duopoly in the retail industry, one of these behemoth retailers should do much better than the other in the current market. Let's look at which company is the better e-commerce platform today.
NASDAQ: AMZN
Key Data Points
1. Amazon is the world's largest e-commerce platform
Amazon was among the first companies to sell products online, starting operations out of Jeff Bezos' garage on July 5, 1994. As a result of its head start, the company has grown into the largest online retailer in the U.S. market. The company has a market share of 37.8% in the U.S. as of June 2022, according to consumer data firm Statista. Many assume that a Chinese website like Alibaba Group Holding is the world's most dominant e-commerce player. However, Amazon takes the crown by far when ranked by revenue generated, according to the web application company AxiomQ, which lists Amazon at $469.82 billion and second-place JD.com at $149.32 billion in revenue.
The U.S and global overall e-commerce markets benefited greatly from the surge of consumer spending during the pandemic. According to the Census Bureau's Annual Retail Trade Survey, overall U.S. e-commerce sales increased by $244.2 billion, or 43% in 2020. Additionally, a recent survey by consulting firm McKinsey showed that the boost to e-commerce penetration from March 2020 until March 2022 was 33%.
The best part is that increased e-commerce sales have reached a much higher baseline. For example, even after consumers returned to shopping at physical stores in 2021, market research firm eMarketer released a report projecting that by 2023, global retail e-commerce sales will reach $6.2 trillion and make up a 22.3% share of total retail sales, up from $3.4 trillion and 13.8% in 2019.
Of course, as the most prominent e-commerce website, Amazon has ridden on the back of these shifting consumer preferences toward online shopping. According to the company, since the pandemic's start, its compound annual growth rate has been 25%, higher than its pre-pandemic growth rate.
NASDAQ: WMT
Key Data Points
2. Walmart has some advantages over Amazon
While Walmart is the largest retailer in the world, the company primarily built its dominance on the back of its physical retail locations. Its e-commerce brand started in 2000, but management only became serious about online retail after issuing weak sales forecasts in a 2015 quarterly earnings report. The market reacted by handing the stock its most significant one-day decline in 25 years. Shortly after that, Walmart began heavily investing in e-commerce.
In 2016, Walmart acquired the rapidly rising e-commerce website Jet.com for approximately $3 billion in cash to learn more about the e-commerce industry. And while its e-commerce business did not look like much at first, by the first quarter of 2020, the eve of the pandemic hitting America, Walmart's U.S. e-commerce sales started percolating with 74% growth. By March 2020, Walmart had become the second-largest e-commerce website in the U.S., according to eMarketer.
One significant advantage that Walmart's e-commerce operation has over Amazon is that the company uses its 4,735 stores in the U.S. as warehouses for its online operations. Since 90% of Americans live within 10 miles of a Walmart store, it has a potential last-mile logistics advantage over Amazon's 110 active fulfillment centers in America, which are much further away than a Walmart store. Additionally, Walmart can use its stores for buy online, pick up in-store (BOPIS). And while Amazon's grocery segment, Whole Foods, has BOPIS capability, it only has slightly over 500 of these stores in America.
Who will win in the current market?
The average Amazon buyer's annual household income is $84,449, which bends more toward middle- and upper-income consumers. In comparison, Walmart leans more toward the low-income demographic, with an average annual income of $76,313. Since inflation hurts lower-income consumers more than higher-income consumers, Amazon has an advantage in the current inflationary market.
On Walmart's second-quarter earnings call, management noted that the rising cost of food and fuel was starting to become a problem for its customers. Also, the company reported excess inventory piling up due to its customers tightening their belts. In contrast, Amazon's management talked about improvements in its key operational metrics, including better inventory levels. Amazon also noted an improvement in consumer demand.
Consequently, although both companies have winning strategies for growth in the long term, Amazon will likely perform better in this turbulent market environment.
