By Lantao Li*
The competition between Walmart and Amazon represents a global battle between brick-and-mortar businesses, such as traditional hypermarkets, with e-commerce.
For now, Amazon has the upper hand. Data shows that Amazon’s sales share in the U.S. e-commerce market in 2021 hit a record high of 56.7% – boosting its market share in total U.S. retail sales to 9.4%. Meanwhile, Walmart’s share was 8.6%. These sales percentages mean that for the first time, Amazon, founded 28 years ago, has surpassed Walmart, first established about 60 years ago. In effect, Amazon has become the topmost retailer in the United States.
In reality, it reflects the impact of the rise of e-commerce causing brick-and-mortar businesses globally to suffer from a “cold winter” for many years. The emergence of e-commerce platforms, thanks to the reorganization of information flow, capital flow, and logistics, has effectively built an online B2C model. Its rise has also improved retail efficiency. However, at the same time, it severed the relations of brick-and-mortar hypermarkets and other physical stores with their consumers. The biggest threats it poses at the moment are mainly felt by hypermarkets, department stores, and shopping malls. In China, for instance, the Beijing Zhongguancun branch of Carrefour, touted as “Asia’s largest flagship store”, officially closed its doors on March 31. This occurrence is a symbolic event that marks the crumbling of traditional hypermarkets.
Having said that, can e-commerce giants like Amazon really emerge victorious in the end? The battle between the two is far from over. Based on global capital market trends and even inherent laws of urban prosperity and the flaws of various e-commerce companies during emergencies such as the pandemic, Walmart may even strike back to seek the opportunity to reverse the situation completely.
Researchers at ANBOUND believe that the survival of Amazon’s model is related to the current tide of excess capital permeating the global market, and only the U.S. market can afford to have such a model. Even so, Amazon is not invulnerable, as various inherent risks remain. For example, the profit margin of North American e-commerce is only 2.7%, which is not a business that can support a huge market value. In an era of unlimited capital, Amazon’s biggest accomplishment is that its business model can create massive expectations among investors that it will dominate the future market in the industry it enters. However, based on the notion of excess capital, the situation will undoubtedly reverse, though when this will occur remains to be seen. The timing of this event, according to ANBOUND’s founder Chan Kung, has something to do with changes in the valuations of systemically significant corporations and movements in the broader market climate. If the market status quo with surplus money changes, and the flow of capital begins to retreat, with investors beginning to focus on sustainable operating returns, there will be serious issues about whether the Amazon model can be preserved. Under the effect of multiple factors combined, the high valuation bubble of technology companies has already shown signs of bursting. The glory days of e-commerce, as thing stands, could very well be over soon.
Such continuous impacts exerted by e-commerce have caused physical businesses to decline steadily, revealing other numerous problems. From the perspective of urban economic development, the disappearance of the physical businesses’ direct consequence is the deterioration of the original urban street system. This situation further reduces the degree of urban prosperity. The key reason is that the linked consumption brought about by brick-and-mortar shops can generate more consumption vitality in urban areas. Meanwhile, the relatively chaotically developed e-commerce will reduce the number of people to be physically present. This means it will not bring about linked consumption and vitality. For this reason, e-commerce is by no means the best way to stimulate social consumption. Many countries have realized that e-commerce, hailed as the so-called new economy, can harm urban prosperity. It will not create prosperity for cities, but rather it might cause the loss of consumption and the decline of street liveliness.
It is also highly dangerous to let e-commerce become the main mode of consumption for a city. Under the current COVID-19 pandemic, the advantages of the e-commerce industry are clearly shown. As a result, some e-commerce platforms have grown, attracting more sellers, and increasing their market share. Despite this, it cannot be ignored that such an outcome may be due to the excessive reliance of urban business operations on e-commerce. This event has caused the current disorder in the supply of goods. A point to remember is that e-commerce is completely dependent on logistics. If the logistics system collapses, for traditional businesses, at its worst, it will affect supplies in the city. However, for e-commerce, it is a supply chain rupture. This situation will directly lead to the urban material supply system’s collapse that is overly dependent on e-commerce. Even if e-commerce can maintain its operation, consumers often pay a heavy price for high-priced purchases and inefficient distribution. With the slump and loss of physical business, the status of e-commerce has become more prominent under special circumstances. In return, it makes many people unaware of the causal relationship.
Traditional retail can better satisfy consumers’ shopping experiences from the standpoint of their demands, but it is also vital to investigate novel and more appealing consumption patterns in the light of the advent of e-commerce and the increased competition that it brings. This will also be the most effective and urgent way for traditional businesses to compete with e-commerce. It is worth noting that, under the impact of e-commerce for many years, supermarkets and hypermarkets are also trying to get online. Walmart’s 2022 fiscal year annual report showed that its e-commerce net sales reached USD 73.2 billion, an increase of 11% year-on-year comparison. This represents a substantial increase of 90% compared with two years ago, and the figure has almost doubled. The obvious advantage of Walmart selling online in the U.S. is that, as one of the largest brick-and-mortar retailers in the world, roughly 90% of the U.S. population lives within 10 miles of a Walmart store. In the competition between Walmart and Amazon, Walmart, which is in the real economy, can deliver goods in a very short time. In contrast, Amazon often takes a few days. This may be is the key to the final outcome. Although Walmart and Amazon still have a long way to go in the field of online sales, after two years of vigorous development due to the pandemic, Walmart has become the second-largest e-commerce platform in the United States. This serves as an excellent case study example.
*Lantao Li, Graduated from Beijing Normal University in 2013 with a PhD degree of Natural Resources and Harbin Institute of Technology with a bachelor degree of Transportation, is an assistant researcher in macroeconomics at Anbound Consulting which is an independent think tank headquartered in Beijing.