I am a big admirer of Sam Walton, the founder of Walmart. Had he been alive, he would have consistently been in the top of the Forbes list. Walmart has penetrated deeply in the life of most Americans. A professor of my finance class, on the very first day of the class, walked in to the class in a faded blue jeans and a dark red color t-shirt chewing a toothpick and declared that everything he buys comes from Walmart. He said “if you don’t find something in Walmart, it means you don’t need it”. He would buy a dozen jeans and a dozen t-shirts at Walmart. No wonder he wore similar looking jeans and t-shirts entire semester. What was supposed to be a business finance class, ended up becoming a personal finance class as he gave some valuable lessons on life. He even went on to explain how he had amassed a fortune by being in a “rent collecting” real estate business despite his humble beginnings in a poor family in Louisiana. He repeatedly told the class to quit alcohol, cigarettes, not to do drugs and stressed that we must not hang out with people who do drugs. He urged the class to get out of relationships if one of the partners was into these “recreational” activities. “Dump your boyfriend or girlfriend if he or she is into drugs”, he would say.
The Beginning
Unlike Amazon’s Jeff Bezos, Sam Walton didn’t start Walmart to seize on the opportunity of a loophole in tax law. He was seizing on an opportunity to provide a one stop shop for consumer goods at a cheaper price backed by superior customer service. His upbringing in Oklahoma and Missouri — very different than the coastal cities of United States — helped him to understand the value of “local communities”. He understood the need of the every day people around him and kept on meeting those needs. Although Mr. Walton passed away in 1992, Walmart retains those same qualities.
The Change
Much has changed since 1992. Internet was the biggest game changer. It introduced the concept of selling goods and later services on the internet. Walmart wasn’t run by people with deep technical background. Neither they could understand the power of ecommerce to seize on the opportunity to become an early adopter.
The Mover
Jeff Bezos — who was at DE Shaw — learned about the growth of internet industry. He was quick to realize that there was a potential to make a business by selling books on the internet. As much as we expect that a product you buy on a website will be delivered to you and your credit card wouldn’t be stolen, this wasn’t the case in 90s. Books, as the entry point to larger ecommerce vision, was the most thought out plan. In those early days, people would not trust buying anything online. For one, a book would be same no matter where you bought it from. Two, there was no taxes if you buy online as the precedence was set in Quill v North Dakota. College textbooks were expensive to buy from book stores so college students started browsing Amazon to find a used copy of the book or an international version being shipped from abroad. Amazon scaled with cheap books – often times counterfeit, royalty free and tax free books while the brick and mortar giants like Borders and Barnes & Nobles started struggling.
eBay v Amazon
I feel it necessary to insert another key feature (or no feature) that made Amazon the leader in eCommerce. In the early 2000s, after the dot com crash, college students would visit two websites for online shopping – eBay and Amazon. People loved to bid on eBay. I would shop on both Amazon and eBay. The products would generally be available in both websites. Cost wise, eBay was most often the cheaper one. Most people complained about the “Filter” feature of Amazon. My guess is that the guys at Amazon were much smarter to design a simpler filter but they purposely didn’t make it as friendly as eBay’s. The key feature that I would look for was the location of the product. In Amazon, I could never find it. In eBay, I could easily see, for example, shipping from Singapore. Returning a product to a foreign country in case it didn’t meet my requirements would be a nightmare. I avoided those items. I would order it from Amazon without knowing where the item was located. In most cases, it would be the same seller as eBay. This anonymity really helped Amazon.
Much has been debated about the sales and use tax as ecommerce grew. Government has been losing money. Forced to charge sales tax, local businesses haven’t been able to match online pricing.
Walmart Becomes Smarter in Technology
Walmart has eventually figured it out. This year I noticed that they have now built a vast marketplace on Walmart.com. Each product I looked for including a Desktop, Laptop and a Sofa, I analyzed in competing ecommerce websites and found Walmart.com’s offering few dollars cheaper. The sellers have started listing their products in Walmart.com as well. I ended up ordering several products from third party sellers on Walmart.com. Same item if sold by Walmart would have forced them to charge taxes because of the physical presence they have in California. By becoming the marketplace, they were able to collect fees from the seller and simultaneously expand the product offerings on Walmart.com. They haven’t done much advertisement (or any) of their marketplace and it may take some time for them to push that message.
Amazon’s acquisition of Whole Foods
By acquiring Whole Foods, Amazon showed that it needs local presence. The company has been building many fulfillment centers to deliver within hours. Whole Foods is no Walmart though. WF is niche market that would never grow to a scale of Walmart. It is a great entry point for Amazon to become a physical retailer though.
The Future
Walmart operates nearly 5000 stores compared to 1200 WF. Each Walmart store is four of five times bigger and provides the every needed items, not just the grocery. No retailer has the brand, reach or the infrastructure like Walmart does. Walmart started with physical stores and now it is pushing for online presence. On the other hand, Amazon started online and now seeking ways to become a local retailer. When shoppers go to Walmart, their shopping cart is usually overflowing; when users shop on Amazon, they have one or two items in their cart. Perhaps that’s why online shopping still accounts for less than ten percent of retail shopping as a whole. Local retail shopping isn’t going to disappear at least in the foreseeable future.