Monday, November 16, 2015

Walmart vs Amazon

Walmart is the largest retailer in the world, by far. It is at least 4 times bigger than its first competitors. It owns a great knowledge of all components in retailing: supply chain, store management, operational cost management, pricing, merchandizing, and even E commerce, as it has invested massively those past few years in this field.

Nevertheless, when you look at the capitalization of Walmart compared to its Ecommerce competitor Amazon, Walmart is by far less liked by the bull market. Why? It is far more profitable, and has been profitable for years, whereas Amazon so far has no profits to show out.

  • E commerce remain the fastest growing retail channel
  • They still have a lot of categories to develop, including food and cosmetics products
  • They have new businesses growing up, especially market place, their cloud services, or kindle activities
  • Moreover, as they don't own store, they are more flexible to face market issues or to grow new countries without having to develop a pricy store network.

Nevertheless, Walmart has some real potential of growth ahead of them:
  • Emerging markets to conquer. So Far Walmart's presence abroad remains weak and a small share of their overal sales. They have real potential to benefit from potential growth of some zones like South America, Asia, or maybe the Middle East
  • Strong projects in E commerce. I believe Walmart has a real edge on its brick & mortar competition on this topic. They have a strong know how in terms of SEO, or click & collect in the US (I believe Carrefour maybe in advance wordlwide, as France is way in advance on the topic). 

Now Walmart in my open remain a sure bet because of its long period of time of performance and its consistency. But there is one key factor that sets Walmart and Amazon: AWS. Amazon web service is all the cloud computing activities of Amazon. It is growing fast, and highly profitable. Way more profitable in terms of % of EBITDA than the discount retail could propose. And Walmart is lacking such a profitable activity. Because of this activity, Amazon has a potential cashflow source that will feed its long term growth.

Interesting article, even though I still believe Walmart has great assets in the competition.