I recently spent quite a bit of time online shopping to furnish my room in New York. Online shopping has been a godsend without a car — I don’t have to schlep over to a physical store and lug all my things back. One of the sites I realized I was buying from more than I used to was…Walmart.com!
We recently had a case study in Strategy and Walmart and several classmates voiced that they had also purchased from Walmart.com, something I would not have expected 5 years ago. Walmart’s e-commerce platform has allowed them to reach two key new segments of customers:
- Urban customers. There are no physical Walmarts in places like San Francisco and New York, but Walmart.com delivers the same experience to Manhattan, NY as it does to Manhattan, KS.
- Middle to upper middle-class suburbanites. These customers may live within a few miles of a Walmart but may have avoided Walmart due to the poor shopping experience of crowds and a disorganized store. They also may not want to be “seen” shopping at Walmart because it could be perceived poorly by social peers. Purchasing on Walmart.com circumvents each of these two issues.
But what was I actually buying from Walmart? Name-brand consumer goods products such as Tide Detergent, Ninja Blenders, and Special-K Snack Bars. This is where Amazon has left a gaping opening for Walmart to take advantage of. Here is a visual representation of Amazon’s strategy and where that opening is for Walmart.
Amazon has significantly increased their efforts in private-label goods in the last 5 years. From clothes to food, if they don’t offer it now, you can bet Amazon is working on it for the future. Private label goods offer much higher margins than branded goods and Amazon is chasing this strategy with reckless abandon.
Amazon has also significantly increased sales of third-party sales, so much in fact that they now make up over 50% of total retail sales at Amazon. Third-party sales also offer great margins for Amazon, not only do they take a cut of the revenue but they don’t own any of the inventory.
When you search for products now at Amazon, 3rd party and Amazon private-label brands dominate the results, with branded goods being squeezed from both sides. I found that some branded goods were unavailable for purchase at Amazon (but could be purchased at Walmart) or were higher priced than at Walmart. You also run the risk of buying counterfeit branded goods on Amazon (I’ve never experienced this before, but it appears to be an issue from the online discussion). Intentionally or unintentionally, Amazon’s push for higher margins from both 3P and private-label has decreased the importance and customer experience of branded goods, leaving an opening for Walmart to pursue.
If I were Walmart’s e-commerce team, I would focus on making Walmart.com THE place to buy branded goods. I would not pursue a haphazard strategy of copying Amazon with a 3P marketplace as is being done currently. The goal should not to try and be a worse version of Amazon, but something entirely different. If Amazon eventually devolves into the marketplace for junky 3P imports of questionable quality with a solid offering of good but not great private label products, then Walmart can successfully position themselves as the #1 provider of quality branded goods.