Consumers are responding to the convenience of Walmart pickup towers.

There are some core competencies that Amazon and Walmart Inc. will never master: Grocery comes to mind for the former, and entertainment content, the latter.

But the $514 billion Walmart’s gains in e-commerce are starting to shorten the lead of Amazon, whose gross merchandise volume in 2018 was $277 billion. During the recent back-to-school period, which is a barometer for the upcoming holiday season, e-commerce accounted for about 58 percent of the record 5 percent uptick in total sales year-over-year. The biggest driver of the expansion was Amazon — no surprise there. What was unexpected was that Walmart’s portion of increase was almost as big as Amazon’s.

“Walmart is playing catchup in a very strong way,” said Craig R. Johnson, president of Customer Growth Partners. “Amazon is miles behind Walmart in terms of physical stores, but not catching up to Walmart. Now Walmart is catching up on the online side.”

When Walmart a few years ago decided to go all-in on e-commerce, “it was starting from a pretty small base,” Johnson said. “Now it’s working off a much bigger base, which is why it’s catching up to Amazon in a big way.”

Walmart and other retailers have responded to Prime Day since Amazon launched its biggest worldwide shopping day, by staging their own, and trying to beat Amazon at its own game. Walmart chief executive officer Doug McMillon during a recent conference call with Wall Street analysts said e-commerce sales growth in the recent second quarter was strong and called out the retailer’s four-day July sales event.

“The key driver of July’s strength was online sales, up a stellar 19 percent, which is the fastest year-over-year growth in over five years,” said Johnson. “Walmart has had stunning success with its curbside Click and Collect, which is available at 2,800 stores. People love it because it’s a big time-saver. Walmart has been able to leverage its single biggest asset: its 4,800 U.S. stores, with more than half equipped with click-and-collect.”

The Bentonville, Ark.-based Walmart has built a moat around itself with its vast store network. “It’s very difficult, if not impossible for Amazon to catch up. It will be very expensive and time-consuming,” Johnson said, noting that Amazon operates 500 stores through its acquisition of Whole Foods. “They’d have to multiply that by 10.”

The inroads Walmart has made in e-commerce will open doors to other revenue streams such as online advertising. “Now that Walmart’s online business in the U.S., including Sam’s Club, is close to $20 billion, Walmart is getting the clicks that translate into the ability to go to these companies and offer themselves up as an alternative to Amazon,” said Moody’s retail analyst Charlie O’Shea. “You don’t necessarily have to catch Amazon, you just have to beat everybody else. If you’re embedded in the second position, you can go to the advertisers and have product placements in stores.”

And Walmart is continuing to position itself to compete more effectively with Amazon. To capitalize on synergies, the former last month [July] began integrating urban-focused Jet.com into Walmart U.S. e-commerce, while eliminating the role of Jet.com president, held by Simon Belsham, who exited the company this month.

A lot of ink was recently spilled about Walmart looking to divest of Modcloth, another acquisition. “I’m not convinced about Modcloth being sold,” Johnson said. “Walmart acquired a number of different brands over the years such as Bonobos and Moosejaw. They’re all good ideas. I view them as acquired private brands. They have more value to me than simply a plain vanilla Amazon- or Walmart-owned brand and have some brand equity.

“Amazon keeps its brands low profile,” Johnson said. “Some of the brands have an upmarket image, more so than if they carried an Amazon label. There are plenty of brands where the emphasis is all on the brand like Blue Buffalo, an upmarket pet food that’s owned by General Mills.”

“With Amazon, you have to believe their strategy is to go for more breadth than depth, and go full-on digital scale with their own brands,” said Carol Spieckerman, president of Spieckerman Retail. “They’re saying, ‘Let’s create this onslaught of private brands across all different channels and product types.’ Amazon doesn’t want any brand to emerge as a top seller. None will achieve massive volume. I call them secret brands because the pride of association isn’t there.”

On the other hand, Walmart has an opportunity to create all different kinds of brands and ask suppliers to create brands exclusively for the retailer, Spieckerman said.

“The power has shifted to the retailer, because the retailer owns the customer,” Johnson said. “The negotiating leverage tends to go to with the Walmart’s of the world or other strong-branded retailers. Walmart is saying, ‘We’re not going to take a tariff increase, you guys have to eat it, importer and manufacturer.’ That’s really changed in the last five or six years.”

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