Warren Buffett is right, retail is a tough game in the face of the Amazon (AMZN) threat.
I wouldn't want to face off with them either.
Technology has been the biggest catalyst fueling a tectonic shift in the retail climate with large cap technology players usurping market share decimating competition.
The rise of e-commerce platforms has been nothing short of spectacular.
Management has also used technology to modernize the global supply chain, in-house operations, and ramp up the hyper-targeting of prime customers.
The treasure trove of big data collected has been the key to pinpointing the weaknesses and finding solutions.
Amazon knew all of this before everybody else. And, Jeff Bezos has already annihilated a large swath of the retail community that will never return.
Walmart was one of the first retailers to wipe out the small brick-and-mortar shops, and Amazon is attempting to do what Walmart did to others in the past.
Luckily, the sleeping giant of Walmart (WMT) has awoken and is laying the groundwork to launch a full-frontal assault on Amazon.
Better late than never.
More than 90% of Walmart's customers live within a 15-minute drive of one of their stores, but why drive 15 minutes with exorbitant gas prices when Amazon says you don't have to?
Once a laggard, Walmart is now instilling its newfound e-commerce operation with a new sense of zeal and purpose, offering Amazon a real threat and copying its best ideas such as two-day free shipping.
Someone must stand up to Amazon. And Walmart with its massive embedded base of loyal and fervent customers and revenue is the ideal challenger.
Currently, Amazon has extracted more than 49% of the U.S. e-commerce market in 2018.
Walmart trails Amazon by a wide margin, and the investment into developing its e-commerce business will boost the 3.7% e-commerce market share.
If Walmart maintains the drive to enhance tech operations, its e-commerce division could double its market share to more than 7.5% from its low base.
This is entirely manageable as it would only need to convert a small percentage of current non-digital customers into using its digital portals whose quality has remarkedly improved the past few years.
Redesigning the official website was timely as the new interface is sleeker, more functional than past versions, and just plain better.
There is even a tinge of Amazon in the design borrowing the best parts of its foe's design and integrating it into a modern look.
The statement of intent is there, and Amazon won't have a frictionless pathway to profits anymore.
Walmart CEO Doug McMillon has been the main man to ramp up the tech side of the business and has injected a fresh batch of youth into the management style.
Online purchases only comprise less than 20% of sales and that runway is still long and wide for a company that has only barely scratched the surface of its tech strategy.
Most tech companies are in the first innings of a long game, but Walmart is even further behind meaning there is ample room to grow.
Even McMillon believes that Walmart will morph into a certain "kind of technology company" going forward.
Not only is it beefing up its digital commerce strategy, but physical stores are getting makeovers to extract additional marginal revenue from each customer.
Walk into your nearest Walmart and you might notice it looks completely different than your father's Walmart.
It is also dabbling a bit with augmented reality to boost the in-store customer experience.
Walmart has installed an avalanche of self-checkout kiosks at the front of the store to ease and quicken customer payment.
The use of big data analytics is now aiding decisions on how to best create the optimal shopping environment for its customers.
In-store pickup automated machines called towers help customers in picking up their goods if they choose to drive to the physical store, thereby enhancing the customer service quality.
Walmart is no longer playing defense and sticking to what it knows.
It is on the front foot and should be.
Walmart announced e-commerce sales spiked 40% YOY in Q, and the man responsible for this execution is Marc Lore.
Who is Marc Lore?
Marc Lore is the chief executive officer of Walmart eCommerce U.S., and the showdown against Amazon is a personal gripe for him.
Lore joined Walmart when his e-commerce company Jet.com was snapped up for $3.3 billion in 2016.
This was more of a talent and expertise grab that Walmart needed at the time to learn the ropes of the e-commerce business to better understand how to respond to Amazon.
Before Jet.com and Walmart, Lore was on the books at Bezos' Amazon.com where his feud began.
Lore joined Amazon by way of his e-commerce company Quidsi, which he cofounded and which was bought by Amazon for $545 million in 2011.
Following Amazon's purchase, Lore and Bezos did not always see eye to eye on how Quidsi would operate inside the confines of Amazon, creating long-lasting tension that has turning into bad blood.
Quidsi specialized in certain genres such as baby products and household goods. After Amazon sucked all the knowledge and life out of Quidsi, it fired the remaining 260 employees at its New Jersey headquarters and closed down the firm.
Bezos cited "unprofitability" for shuttering Quidsi, and the thinly veiled parting shot at Lore registered deeply inside the back of his mind.
Lore reinvented himself and launched a new e-commerce business called Jet.com.
After being absorbed by Walmart, Lore was repositioned to the top of Walmart's e-commerce division leading the helm.
Lore understands how to take on Amazon after working inside its Seattle headquarters for years after the Quidsi integration and knows how to beat the company at its own game.
He is the perfect person to help Walmart infuse success into its e-commerce division. Walmart is the optimal platform for Lore to get revenge against Jeff Bezos.
A win-win proposition.
Walmart e-commerce business is on track to rise 40% in 2018.
A few changes he set off right away were the expansion of Walmart's online selection adding more than 1,100 brands, setting up a creative discount program attracting more shoppers into physical stores, cooperating with Google to integrate voice-activated shopping mechanisms, and signing up a new in-house brand called Bonobos to design an exclusive portfolio of brands mirroring Amazon's 76 private labels on its platform.
Lore even took a page out of Amazon's playbook and made two-day free shipping possible for millions of products through its website.
Warren Buffett has said in the past that not investing in Amazon and not investing more in Walmart when he had the chance were two of his most regrettable mistakes.
It could be true that this time around Buffett jumped the gun in unloading his Walmart shares. I agree that retail can be scary, but not all retail is created equal.
For some particular retailers such as Walmart, the future doesn't look so bad.
I agree with Buffett that Walmart has more than tough competitors, but if Walmart emphasizes its digital first strategy via mobile and desktop, there is a lot of wiggle room to harvest gains from these positive changes.
Walmart has been used to growing 1% to 2% in U.S. same-store sales per year, and it was habitually assumed as a constant.
The growth of 4.5% proves that tech investments are paying dividends and even though margins are pressured, it's a must to stay competitive.
If Walmart can lure in growth investors who believe in the evolving tech narrative, it would expand the variety of investors interested in Walmart.
Walmart has a lot going for them and sometimes that gets lost around all the hoopla about the Amazon threat.
Walmart has the mind-boggling scale retailers dream of and migrating its own customers online is the key to unlocking new value.
Certainly, these customers will purchase more products after algorithms identify the products customers desire to buy.
Margins will suffer somewhat from this new strategy, but growing pains and reinvestment are sorely needed to turn around the ship.
Luckily, this legacy retailer is on the right path and has hit on the right strategy.
Once the technology is running efficiently, the average revenue per user will start to rise as with for all top-tier technology companies because of leveraged scale making it possible to boost profits.
In addition, there is potential digital ad business to nurture along if Walmart can shift a decent number of legacy customers to mobile or desktop platforms.
The future doesn't look so bleak for Walmart, neither does its share price.
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Quote of the Day
"We will compete with technology, but win with people." - said CEO of Walmart Doug McMillon.
