These days, e-commerce is fast becoming the most common way for customers to buy products and services. Within the industry, titans like Amazon are driving further demand, thanks to low prices and cheap (or free) shipping.
Retailer Walmart is having a moment with e-commerce sales, thanks to a recent 41-percent boost. However, while the brand is doing well online, it’s struggling to keep up with Amazon, particularly when it comes to profit margins.
On the surface, a 41-percent increase in sales should be a boon to the business’ bottom line. However, because margins are shrinking, the company is in a bit of a bind regarding how to stay competitive while maintaining profitability.
Because of this apparent contradiction, we wanted to take a closer look at the comparison between Walmart and Amazon, particularly with how the latter can maintain such razor-thin margins. We also want to look at how Amazon is affecting e-commerce businesses in general with its practices.
How Walmart’s E-Commerce is Booming
Although Walmart has a massive storefront presence, shoppers are flocking to online purchases more than ever before. The brand has been relatively able to keep up with demand by diversifying its e-commerce offerings and blending online shopping with in-store buying. For example, customers can order a product online and pick it up in-store.
Let’s look at a few of the ways that Walmart is capitalizing on the e-commerce trend.
For a time, buying groceries online seemed like a far-fetched option. However, these days, consumers like the convenience and reliability of ordering food over the internet and either having it delivered or picking it up in-store.
Fortunately, Walmart has the network to make grocery shopping feasible on every platform and channel. Currently, over 3000 stores offer pickup services, with 1,300 stores providing delivery as well. Because of this kind of reach, Walmart can scale up its grocery offerings without sacrificing quality or stability. Right now, about 11 to 13 percent of current Walmart customers utilize grocery services, and that number is trending upward.
Interestingly, as Amazon pushes groceries too, the company is educating consumers on how to use these services and what to expect as well. This kind of proliferation can help both brands succeed in the long term.
Home and Furniture Brands
Another way that Walmart has been appealing to online shoppers is by offering a wider array of exclusive and designer brands, particularly in home goods. Furniture, baby supplies, pets, and other products are all becoming more high end, which means that customers can expect better quality from the business overall.
Adding to this exclusivity is the ability to customize designs and products – browsing is much more involved and personalized, which encourages users to buy from the retailer.
Next-Day, Same-Day Pickup and Shipping
One of the primary reasons that Amazon has become the titan of e-commerce is its shipping practices. There used to be a time when customers would wait days or weeks for a package to arrive without any issues or complaints. However, these days, next-day and two-day shipping are pretty much the standard. Amazon even offers same-day shipping on many products, making them even more appealing for customers.
To compete with this kind of instant gratification, Walmart announced next-day delivery and same-day pickup in-store. These features add to the convenience of shopping online, giving customers the ability to choose how and where to receive their items. Even better, next-day shipping also cuts down on costs for the retailer, as products can get shipped in a single box from the nearest storefront, rather than making multiple trips.
When you look at the competitive spirit between Amazon and Walmart, it seems like each brand is trying to become the other. Since Amazon began online, it’s always been more on the high-tech side of things. In fact, the e-commerce giant makes so much money through cloud services that it can afford to take a hit on product margins – something that Walmart can’t do yet.
Nonetheless, the retailer recently bought several high-profile tech companies to help facilitate better delivery and e-commerce services. For example, Walmart bought Parcel back in 2017. The startup specialized in offering last-mile and same-day delivery. In 2016, Walmart also bought Jet, a competing e-commerce platform, to help broaden its reach and increase its customer base.
While Walmart still has a way to go to catch up with Amazon in the tech sector, it’s making substantial strides, particularly in recent years. Comparatively, Amazon is starting to open brick-and-mortar retail stores, further illustrating how the two brands are becoming more alike every day.
High Sales, Low Margins
So, even though Walmart is improving its e-commerce offerings, why are its margins so tight? It’s actually a systemic problem across the industry, so let’s look at the reasons why.
High Shipping Costs
Because demand for online goods has become so ingrained in modern society, there are more delivery trucks on the road than ever before. Each truck requires a driver, fuel, and maintenance costs, which can add up over time.
Unfortunately, many of these costs (or all of them, in some cases) are paid by the retailer, not the consumer. Because Amazon has trained customers to expect deliveries as soon as possible, other companies have to compete or get left behind. So, free or reduced shipping has become the norm, which cuts into profits substantially.
Less Control Over the Customer Experience
In a brick-and-mortar location, the physical space of the store can have a lot to do with customer retention. Better service, convenient layouts, and unique store design can help improve a company’s bottom line.
Online, these elements are close to nonexistent. Customers aren’t visiting one site over another because it provides a better shopping experience. Instead, prices are the dominant factor, mostly regarding shipping and handling fees.
Because of this lack of differentiation, e-commerce stores, in general, can’t compete as well among each other. One site is likely not much more unique than another, so it’s almost impossible to stand out on the atmosphere or engagement alone.
Demand for Low Prices
Overall, we can trace the difficulty in maintaining reliable profit margins to Amazon. Because its founder Jeff Bezos, has focused more on customer retention and brand recognition over profits, Amazon has changed the e-commerce landscape. Not only are consumers expecting free or cheap shipping options, but they are demanding lower prices as well.
When you add everything up, these trends paint a troubling picture, not just for Walmart, but for any e-commerce business.
Bottom Line: Walmart Still Has an Uphill Battle
If anyone can compete with Amazon, it’s Walmart. However, while the retail giant has made e-commerce growth a priority, it’s still lagging. A huge reason for the disparity is that Amazon can diversify more than Walmart, so it will be interesting to see how Walmart adapts in the coming years.
No matter what, though, this kind of competition has made it better and more convenient for customers. In the end, they are the big winners.