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The Clash Of The Retail Titans

“The king is dead. Long live the king.”

While that phrase is likely not terribly familiar to most American readers, English readers will recognize it as the first thing one hears when a British monarch dies. Historically, there is a good reason for that phrase: England’s Royal council determined in 1272 that to avoid a civil war over succession every time a monarch died “the throne shall never be empty; the country shall never be without a monarch.” 

That phrasing, however, lacks some punch — and so “The king is dead” refers to the monarch who has just died, while “Long live the king” affirms that his successor has immediately ascended to the throne.”

However, in the U.S. — due to a tragic lack of hereditary nobility — there aren’t all that many uses for such a historic and august phrasing. That said, we suspect that Amazon CEO Jeff Bezos may have found just such a use case — likely the subject line of an email he wrote to Walmart CEO Doug McMillon sometime yesterday morning.

As you probably well know, Amazon is now the biggest retailer on earth, as measured by market cap — having bounced Walmart to the No. 2 spot following investor exuberance over the Q2 earnings report.  

So is it time to start planning that coronation?  

[And can we order a crown on Amazon?]

Yes, we can; Amazon actually has an impressively large volume of crowns.

But before placing that order, PYMNTS thought we would take a closer look at the clashing Retail Titans to see how they stack up across a variety of categories, as there is more to ruling retail than a dominant market cap.

Amazon’s Amazing Q2

Amazon had an excellent second quarter. The firm posted a quarterly profit of $92 million, a nice change of pace from the $126 million loss this time a year ago. Operating income was $464 million, a big turnaround from a $15 loss million a year ago. Sales for the quarter increased 20 percent from the year prior to $23.18 billion (from $19.34 billion in Q2 2014).

Beyond the numbers, CFO Brian Olsavsky (who led the analyst call) touted the success of Prime Day, the success of the Prime program, the success of fulfillment by Amazon, the launch of Echo, the launch of the Alexis Fund and the expansion of Prime same-day delivery. To put it succinctly, had Olsavsky paused at any point during his presentation to sing Queen’s “We Are The Champions,” onlookers might have thought it odd, but no one would have thought it oddly out of place.   

The market basically confirmed Amazon’s “champions of the world” status when in after-hours trading the eCommerce giant’s shares shot up to $573.45, which valued the company at roughly $267 billion.  

[Things cooled a bit when the light of day hit Wall Street yesterday. As of the time this story was written, Amazon’s market cap was sitting at $259.4 billion.]  

Still that great big bounce was enough to launch Amazon to the status of largest retailer in the world by market cap, leaving a longtime rival who sat there for almost two decades in a terribly unfamiliar place: second place with a market cap of $231 billion.  

Ruling Retail’s Revenue

Amazon brought in $89 billion in revenue last year, which was the best year in sales the firm had ever experienced. And $89 billion is a lot of money.

It is also less than 20 percent of the $486 billion in revenue Walmart brought in during the same time period. In fact, the last time in history Walmart made less than $89 billion in revenue in a single year was 1995 — the year Amazon went live. How nostalgic!

Since 1996, its profit has been north of $90 billion every year, since 2002 it’s been above $200 billion, since 2006 it’s been above $300 billion and since 2009 (during the height of the Great Recession) Walmart crossed the $400 billion per year mark and never looked back.  

It also seems worth noting that Amazon is not No. 2 on that list, nor has it ever been. Amazon doesn’t even get to stand on the medal podium in the category of largest retailers by revenue in the U.S.

Costco would get the silver medal — with a $112 billion per year in revenue — followed by Kroger — with $98.3 billion. Amazon is in fourth place, where it has been since 2013 when it displaced Walgreens. 

Profit vs. Growth

Amazon likes to spend money. Those $89 billion – and then some – are used to fuel its never-ending series of expansions and innovations. With Prime, same-day delivery, Echo, Kindle, the Fire Phone, Dash buttons — if it has seemed as though Amazon has been rolling something new out every 15 minutes for the last five years, it is because they more or less have been as they look to consolidate and dominate eCommerce specifically and all commerce more generally.   

Which means in the last 20 years Amazon, despite everincreasing annual revenue, has only pulled in about $2 billion in profit. And that’s pretty intermittent.

Walmart by comparison, banks $2 billion every seven weeks. Walmart, despite having seen sales slip some, quite literally dwarfs Amazon when it comes to profits, as this chart demonstrates.  

Traffic

Amazon is the most heavily trafficked eCommerce website in the U.S. with 175 million visitors per month. And Walmart doesn’t silver medal in this category either. eBay holds that spot with 122 million monthly visitors. Walmart must content itself with bronze medal status and 82 million monthly visitors on average, and a concerted effort to improve that.  

However, online retail isn’t Walmart’s main show; they are primarily a physical retailer. A physical retailer that has a location within 15 minutes of 90 percent of the U.S. population. Walmart’s average weekly foot traffic is 260 million worldwide, with about half of those feet in the U.S. That means about a third – maybe a little more – of the country visits a Walmart every single week. And times 4 – over a month – comes to about 400 million.

Those feet drive a lot of spend, as $36 million is spent every hour of every day at Walmart. For those of you doing the math at home, that means that Walmart earns Amazon’s annual profit every 95 days or so. 

So what, you say. Yes, there are many ways to measure size, and while market cap is a good one, Walmart still rules the roost (by a big margin) in sales, profit and consumer traffic.

So why do investors think Amazon is worth more?

Growth potential. Walmart’s model — the big superstore — has been in decline in the last few years as the American consumer has fallen out of love with the big box experience and traipsing to a physical store of any kind. Walmart’s profits have increased, but their sales growth has been erratic over the last five years — as opposed to Amazon’s, which has consistently increased.  

Walmart’s challenge is to make their physical stores work for them in a way that Amazon’s digital presence cannot. If there is a Walmart within 15 minutes of most every single American, ordering online and shipping to the consumer seems like a path to ongoing revenue and profits for Walmart. One of Amazon’s most massive investments is in the area of logistics and robots and drones and warehouses and systems that can help it get goods to consumers faster. But Amazon is looking at many of the same opportunities – Amazon Fresh, for example, and Pantry are aimed at the jugular of Walmart and Target and their lucrative grocery businesses which drive feet into stores – and partnering with local suppliers to eliminate friction from order and delivery.

It also probably bears remembering that this time last year, in the wake of the Fire Phone fiasco, “We Are The Champions” was not the piece of classic rock people were playing for Amazon, as most likely preferred The Doors’ “The End” as their lyrical tribute to the house that Bezos built.  

But all that confirms is that it can — and will — only get more interesting from here.

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