Pick a side, play Switzerland or just try to stay out of the line of fire.
Those seem to be the choices for everyone else in the battle of Amazon and Walmart Inc.
While the fashion and retail industries are used to brawls — and in many cases skilled at playing the combatants off against each other — the sheer scale of the battle to dominate clicks and bricks has changed the dynamic.
And that’s making for some strange bedfellows.
This week, electronics specialist Best Buy linked with Amazon, with the retailer agreeing to sell the e-commerce giant’s Fire TV Edition smart TVs. The move echoed Kohl’s Corp.’s pilot program with the web giant, which saw the department store company accepting and packaging returns for Amazon customers.
While both deals whiff of inviting the wolf in for supper, they also signal to a certain extent capitulation and a growing recognition of the power of Amazon, which accounts for half of all U.S. e-commerce and now has more than 100 million members in its Prime program.
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Kohl’s outgoing chief executive officer Kevin Mansell has had to repeatedly fend off questions about the partnership.
Mansell told analysts last month: “We really only have one objective here, which is, the key priority we have as a company is to drive traffic and ways in which we can innovate and ideate to help improve the trend of traffic.…We’re more focused on it being a great customer experience and making sure that that customer is happy when they do arrive in a Kohl’s store because that will give us the best opportunity to convert them into a sale.”
Hudson’s Bay Co.’s Lord & Taylor division is playing to the other side and next month will launch a flagship on Walmart.com.
“We see customers on our site searching for higher-end items, and we are expanding our business online to focus on adding specialized and premium shopping experiences, starting with fashion,” said Denise Incandela, head of fashion at Walmart U.S. e-commerce. “Lord & Taylor is part of the team we’re working with as we continue to create a new Walmart.com.”
The deal with Lord & Taylor could help bring more brands to Walmart, which has aligned itself with Bonobos and others through acquisitions.
Both sides are paying more attention to their private-label programs, looking to grab more margin and absolute market share by making the goods themselves.
That’s the zero-sum front of the battle — Walmart has Bonobos or Lord & Taylor so Amazon doesn’t. And it doesn’t seem in the offing that Kohl’s will accept Walmart returns anytime soon. Both also are expanding their private label, and therefore exclusive, offerings.
In the crossfire and trying not to get sucked in to a fight between the giants are the innumerable mainstream retail and fashion players that populate the malls or sell in many cases B-level brands and are trying to connect directly with the customer on their own merits and in many cases find themselves diminishing in the market.
But the big, democratic and desirable brands are still able to make a play at neutral territory, exploiting their broad appeal.
“You’ve got to follow the eyeballs,” said Chip Bergh, president and chief executive officer of Levi Strauss & Co., in an interview with WWD.
Levi’s, which has a significant presence on Amazon, has also just added its red tab jeans to Walmart.com.
Bergh said even if he doesn’t sell Levi’s through the big platforms, the brand’s looks would still end up there, if not from third parties, then the gray market or even black market.
“With these big stores, I’d much rather be in control of the brand,” he said.
“We love all of our [retail and e-commerce] customers,” Bergh said in an earlier interview. “They’re a path to the customer in many ways and there’s no question that Amazon and Walmart are legitimate forces in the marketplace and both are doing really well. I think the Walmart turnaround over the last 18 to 24 months is really impressive and it’s been driven by what they’re doing with their e-commerce platform and they have a very strong competitive advantage with their [5,400] stores.”
Amazon, he noted, is growing very quickly and has a very specific customer base.
“We’re trying to figure out how do we maximize our business with both of them,” Bergh said. “In a world of winners and losers, I think both of those customers are going to come out on the winning side.”
That’s probably right — both Amazon and Walmart are too big, too well-established to simply disappear. This is a battle without a nuclear option.
But Amazon or Walmart might well surge ahead or gain traction for a time only to then fall behind as circumstances change or the other presses an advantage.
Gauging the advantages of each side or projecting just who will ultimately win has become something of a parlor game in retail. RetailWire set out explore the issue in a recent Webinar, “Amazon vs. Walmart: Clash of the Retail Titans.” Other industry experts also weighed in and shared their views with WWD.
“Clash” compared the assets and capabilities of both retail goliaths.
Lee Peterson, executive vice president of strategy and design at WD Partners, and Carol Spieckerman, president of Spieckerman Retail, argued the merits of Team Amazon and Team Walmart, respectively. Slice Intelligence vice president and principal analyst Ken Cassar was the referee.
With 2017 net income of $9.86 billion on total revenues of $500 billion, Walmart earned more than three times as much as Amazon, which pulled in net income of $3 billion on revenues of $178 billion.
Walmart’s operating margin of 5.6 percent beat Amazon’s 1.4 percent, yet the digital giant’s market valuation of $753 billion easily tops Walmart’s $259 billion. Amazon is predicted to surpass Walmart in gross merchandise volume by 2019 or 2020.
Amazon has been aggressively pursuing a private-label strategy to fill the void left by a lack of middle-market and contemporary apparel labels willing to sell on the platform. Still, Amazon’s private-label penetration in fashion is small. A recent count found fewer than 900 private-label items out of almost one million branded apparel listings on the site. Third-party sellers account for 86.3 percent of the total apparel offer, and Amazon’s 30 best-selling brands command 30 percent of sales, indicating that the retailer “has much more room to run in private-label apparel,” according to Coresight Research.
Walmart in March launched new brands for women, plus-sizes and kids, and repositioned its existing George label to focus on men only.
“Walmart could manage a greater number of [private-label] brands, but made a clear decision not to,” Spieckerman said. “Walmart will make most of its fashion moves in digital. They’ve already indicated that a lot of things are getting incubated in the online space before they then move into stores. They’re pursuing a digital-first strategy in apparel.”
Beyond Bonobos, the retailer acquired digital native brands Modcloth, Moosejaw and Shoes.com. Spieckerman said “Walmart is building brands in a distinct portfolio. Amazon is a marketplace, but Walmart has a marketplace. Walmart’s portfolio of high-affinity brands enjoys a loyal fan base and will scale across multiple categories and geographies. Walmart is becoming this massive multiformat portfolio company. Shoppers aren’t going to know they’re shopping on Walmart. They have no idea that Bonobos is a Walmart company.
“Walmart can reserve the right to integrate some of the acquired brands into stores,” she added. “They’re building a digital house for Lord & Taylor. That partnership gives Walmart permission to play a little more on walmart.com with the brand portfolio it integrates into the platform.”
Walmart has forged partnerships and supplier relationships, while Amazon is seen squeezing suppliers — a role previously held by the Bentonville, Ark.-based retailer. “Jeff Bezos said, ‘Your margin is my opportunity,’ not Sam Walton,” she said. “Amazon has a platform and it’s rocking on it. But the portfolio and brand proposition is weak at Amazon. Brands get lost in the shuffle, and it’s only going to get worse as Amazon continues to crowbar piles of its private brands into the mix. At the end of the day, brands get diluted within the Amazon platform.
“Walmart is going to start selling Levi’s Red Tab in a few weeks,” Spieckerman added, referring to a program that has since started. “If you have a nice denim program, that will be a perfect supplement to a brand-less environment.”
Walmart has been making moves in beauty. A new digitally native cosmetics brand developed with model Coca Rocha called Co Squared is launching. Found, a new natural beauty brand with the tag line, “Miracle ingredients from around the world,” features color cosmetics and skin-care products with ingredients such as nettle seed oil and rosehip oil.
After Walmart acquired Bonobos in 2017, rumors suggested the retailer might acquire Birchbox. Walmart didn’t buy Birchbox, but it quietly launched its own subscription beauty box. A limited-edition Award-Worthy box was curated by InStyle and a limited-edition men’s grooming bag for $7 launched.
Walmart’s Store No. 8, the retailer’s technology incubator for investing in ideas for the future of commerce, held a contest for developers to create solutions to problems in virtual commerce. One finalist created photo-realistic holograms of real people that would allow a Bonobos Guide to fit a virtual shirt on a hologram of a real model. Another was a virtual Rebecca Minkoff store with beautiful, photo-realistic digitally generated products.
The last solution, which creates interactive virtual store environments customized to reflect a brand’s identity, could foreshadow an online shopping mall with storefronts such as Lord & Taylor, other department stores and brands that would want access to the more than 200 million customers that visit Walmart stores each week.
While Walmart still has the advantage of sheer size in its brick-and-mortar footprint — which some experts see as a negative in these challenging days for retail — Amazon has nearly the same reach and is practically synonymous with technology.
“Are you a platform? A core capability of Amazon is that you expose your platform to external parties to use and innovate on top of,” said John Rossman, a former Amazon executive and author of “The Amazon Way.” “Platforms need to be self-service. Amazon has many platform businesses. I launched and ran the Marketplace.”
Amazon commanded nearly half of all U.S. e-commerce sales during the most recent Christmas season, while Walmart’s share was a distant 5 percent. Amazon shoppers order an average of 27 times a year, while Walmart.com shopper does so just once. Walmart’s order size, an important metric for profitability, is $70 versus $50 for Amazon, and 38 percent of Amazon’s orders are less than $20. “It’s hard to make money on that,” said Cassar.
“Amazon is losing money on its global business,” said Cassar.
Peterson agreed: “In the long run, depending on how global plays out, Walmart has the advantage of not being Amazon and being able to go and create partnerships. Everyone is terrified of Amazon across the world. Everywhere I travel, Amazon is a bad word. You’ve heard the term Yankee Cowboy — taking over without any thought to regulations.”
Spieckerman said: “Walmart is a true international retailer. Everyone thought [international] digital would be easy for Amazon, but it has huge barriers to entry where the nominal model is the dominant shopping model. Walmart partnered with JD.com and launched its own version of Amazon Go in China. Walmart has incubated ideas globally with partnerships, it’s not going it alone like Amazon. Walmart is forging local partnerships in its international business.”
However, many see Amazon’s intense focus and its culture, which demands innovation and doesn’t fret over failures along the way, as a key asset.
Rossman noted Amazon’s first leadership principal is an obsession with the customer.
“An empty chair was brought into meetings at Amazon to remind you the customer is always present,” Rossman said. “A customer experience officer is a good step, but doesn’t give permission to everybody to understand the consumer. It’s everybody’s job at Amazon. They’re using the [Internet of Things] to improve customer experience. Amazon believes most customer questions and customer contacts are actually due to a deficiency or an error. They empowered their customer service team to address the root cause of the customer problem.”
Peterson called Walmart’s 5,400 U.S. stores a weight around the retailer’s neck. Spieckerman countered, “They’ve turned their massive physical scale into a digital asset. Anytime a customer just enters a store, there’s solutions and services housed there, and Walmart has the ability to pick up incremental sales on those visits. It’s also investing in automated solutions in stores and building it’s own cloud network.”
The debate could go on for years — and likely will.