For long part of history, it was brick and mortar stores that dominated the retail industry. However, in recent years, the scenario is changing. While most of the people still prefer to purchase through brick and mortar store, however, ecommerce sales is growing at rapid rate unlike brick & mortar. While ecommerce is enjoying the growth rate of around 16-20% each year, its counterpart is showing under 2% of growth rate.
It was just a year back when Walmart bought jet.com, an existing ecommerce company, to improve and expand its presence in ecommerce sector. In response to Walmart, Amazon recently announced to purchase “Whole Foods Market”, an existing retail company which has presence in major 400 locations in US. It seems that both of these retail giants are switching to Omni-channel strategy even though physical retail stores has seen a slow growth in recent years. So, why actually both of these retail giants changing their strategy? The reason is because both are eyeing on each other’s market share. Though their business model is different, they are competing for same kind of products. One thing is for sure that neither Amazon nor Walmart will stay content with whatever share of market they have; of which they are both aware.
In 2015, Amazon made $93 billion in ecommerce sales compared to Walmart’s ecommerce sales of $13.7 billion. Since the trend is for online, this huge gap in ecommerce sales is a major concern for Walmart despite being a well-established brick and mortar retailer. Besides, Amazon is able to cut costs effectively. That is why Walmart needed to have a strong online presence. Their acquisition of jet.com justify it.
But then, why would Amazon need to change their strategy as well, when the trend is for online. The real threat is not from their business model being obsolete but from their competitors. Since Walmart is already getting its hand into the online retailing as well, in long run, they can have a huge competitive advantage over Amazon with its physical presence. Not every people, every time, prefer to shop everything online; the huge volume of sales from physical stores of Walmart suggests that. Sometimes, it’s easier and faster to drive few minutes to buy the stuffs from the physical store, where you can have real taste and feel of products you want to purchase, than to order online and wait for it. Since Walmart already has a strong physical presence, they can make these customers their brand advocates and drive ecommerce sales as well with effective marketing. They can provide customers the option to buy online or on-store as per their need. Besides, even in the case of ecommerce sales, customers will have this peace of mind that whenever they feel bad about certain products they purchased online, they can immediately run to a nearby Walmart store and make complaint or make a replacement with less hassle. Another major concern for Amazon could be fact that Walmart is already known for providing cheap products in their physical retail stores. With ecommerce they will be able to provide products at even cheaper price by cutting various costs like Amazon do. Last but not the least, Amazon can’t ignore the huge sales that Walmart is making from their physical stores simply because the growth rate is not high. This small percentage of growth rate could be a result of market saturation rather than people being disinterested in shopping from physical stores. Hence, it was necessary for Amazon to have a brick-and-mortar presence.
The recent announcement of Amazon to buy a grocery chain “Whole Foods Market” justify it. They are not just buying a grocery store, but making their presence in 400 wealthiest areas of US which are future distribution centers for their brand. This move is of huge strategic importance. From the perspective of customers, it gives them the new access point to Amazon. Now, they will not just be buying groceries from Whole foods but also, they will have access to far more products.
He is currently a full time MBA student in Kathmandu University School of Management (KUSOM). Having completed his bachelors in civil engineering, he is now pursuing specialization in Finance. In the process, he has bagged some failed startups as well.