Amazon, Walmart, Target: A 2019 Summary of America's Major Retailers

Amazon: Being the 'definer' of the game, not just the 'player'

By Prince Wei @RetailWayWatch

What's the point of playing better than your competitors in the mall? In the mall, playing better than your competitors does give you a leg up on the competition, but if you can change the rules so that your competitors play in your world, then you really are a winner.

In 2005, Amazon changed the rules of the game "with great fanfare" amidst a barrage of derision from investment banks - it launched Amazon Prime and introduced "2-day free shipping". "The "offer" was a clearly uninformed one. It took many years for other retailers to realize the "disaster" and to respond to the wave of paid memberships, and Amazon became the largest e-commerce company in North America and one of the largest e-commerce markets in the world.

? At the same time, two-day free delivery has become the "new standard" for the entire retail industry.

Over the past few years, some traditional retailers have gone after Amazon Prime, investing heavily in e-commerce and omni-channel in the hopes of challenging its position.

Let's take a look at two of Amazon's archrivals, Walmart and Target.

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In 2016, Walmart acquired e-commerce platform Jet.com for $3.3 billion and took its CEO Marc Lore under its wing to transform itself in the e-commerce and logistics space, and it's making pretty good progress so far:

While these investments may be associated with lower margins in the short term, they're worth it in the long term, and in the 2nd quarter of this year. Walmart U.S. saw year-over-year sales growth of 2.8% and 37% revenue growth in its e-commerce business.

Target has long been digitizing the in-store experience for consumers through the Cartwheel app, which has since become the official Target app, providing a seamless omnichannel experience for consumers.

In December 2017, Target acquired Shipt, which brought a whole new transformation to take the Target shopping experience to the next level.

Some of Target's highlights for 2019 also include:

Looking at this year's 2Q report, Target's hard work paid off, with year-over-year sales growth of 3.4%, and a 34% increase in sales in the e-commerce channel.

Interestingly, Amazon didn't respond to this and continued to pick up its own pace, because in Amazon's eyes, it's more like the major competitors are responding to something Amazon has been doing since 2005.

In recent years, Amazon, which has been marginally profitable, has finally produced some nice profit numbers, which can be considered a sign of success after opening the "second curve" in 2005, and Amazon seems to be planning to open a new "second curve". So Amazon seems intent on starting a new "second curve" as it begins to throw profits at all sorts of new programs to test, tweak, and iterate in order to pivot to the next flywheel growth cycle - in other words, Amazon is going to define the rules of the game one more time.

Here's what Amazon is starting to invest in:

Free 1-day shipping and accelerated same-day shipping

Amazon announced free 1-day shipping across the US on more than 10 million items, and same-day shipping on 3 million items in select metropolitan areas.

Amazon has already "electrified America" with TV ads, online ads, outdoor ads, and more.

Amazon has reinvested most of its profits in building, partnering, and acquiring middle-mile and last-mile infrastructure to scale, improve efficiency, and reduce costs.

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Disappearance of add-ons and "Prime exclusives"

Amazon used to have a lot of low-priced, low-margin add-ons that consumers had to pay a lot of money for. So consumers had to buy a bunch of other products to make up the $25 minimum, and there were a lot of "Prime Exclusives" that were only available to Prime members. These are all profit-serving schemes in their own right.

However, in the last half-decade or so, as Amazon has redefined its growth model to compete with Walmart and Target, these kinds of products have almost completely disappeared.

Prime Pantry becomes an added value to Prime

In and of itself, Amazon has a Prime Pantry service in addition to Prime, which essentially expands the assortment of low-priced, small-packaged food and FMCG products and encourages consumers to buy in bulk. For all Prime members, you can pay an additional $5 per month to get free delivery on Prime Pantry.

Now, Prime Pantry is integrated into Prime for free, requiring only that a single order be greater than $35 for free delivery, and offering greater discounts when consumers buy in bulk (e.g., buy 15, get an extra $15 off, etc.) to increase the number of items in their shopping baskets in a low-barrier, low-friction way and take more of a share of the wallet from consumers. This is a low-barrier, low-friction way to increase the number of items in a consumer's shopping basket and take more out of their wallet.

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The battle for attention

According to a recent 2019 study by Reelgood, Prime Video outpaces its rivals Netflix and Hulu in the number of movies and shows available to watch, as well as the number of high-quality movies-? -Amazon is currently only behind in the number of high-quality programs.

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? Simplified return policy

According to Avionos' 2019 consumer survey, 50% of respondents viewed a "simple return policy" as a positive experience. So Amazon improved its return policy by offering "free, no-box returns" at Amazon Books, Amazon 4-Star, Whole Foods, Kohl's, and UPS stores (and at other locations, but you'll need to bring the box with you).

Fresh grocery delivery

While Amazon Fresh has lagged behind the Prime Now service in its expansion (it now covers more than 88 cities), it continues to expand. Amazon is moving forward with a new program in the U.S. aimed at opening a new chain of grocery stores, and has already signed multiple leases in Los Angeles, with plans to expand to other metropolitan areas in the mid-term.

Amazon has its sights set on the fresh grocery space, building on established infrastructure to accelerate expansion in the future.

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Amazon is reinvesting in all of these areas to solidify its ecosystem and drive the next spin of the flywheel, and Amazon may change the rules of the game in many more areas in the future - for example, Amazon has already invested in health care and pharmaceuticals.

No one is immune to disruptive change, but it's much better if that change comes from within: for the past 15 years, Amazon has been playing a long game, and has designed the rules of that game.

As in this year's 3Q earnings report, Amazon's profits are down, essentially because the free 1-day delivery business is whaling away profits, but who knows if, 5 years from now, free 1-day delivery will be the new industry standard?

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