Is Amazon Making Walmart The New Mom-And-Pop Shop?

A customer carries a basket while shopping for school supplies at a Wal-Mart Stores Inc. location in Burbank, California, U.S.

It’s been widely reported this holiday season that Walmart is closing the pricing gap with Amazon, but is cheaper pricing enough? After decades of squeezing out local competition with the lowest prices and an “all under one roof” approach, are the online convenience of Amazon and the migration to online shopping giving Walmart a taste of its own medicine? Maybe.

With e-commerce sales growing three times faster than in-store sales, according to a recentstory, Walmart is certainly fighting the fight, and their online strategy seems to be working. While Amazon.com is still the king of holiday e-commerce spending (capturing as much as 50%), Walmart inched up to 10 percent of online spending between Black Friday and Cyber Monday according to research by GBH. While this seems like a sliver compared to Amazon, it represents a pretty sizable increase of 50 percent over last year.

However, as Walmart works to leverage its enormous physical footprint by offering lower prices in its local stores than on its website -- sometimes cheaper than Amazon -- one has to wonder whether Amazon’s displacement of Walmart has made the company a modern day version of the “mom-and-pop” shop in discount retail.

Regardless, the question remains whether the flex of Walmart’s physical muscle and its increasing online sales will be enough to compete long-term, particularly against a competitor that looks like a retailer, but is treated more like a startup. Here’s why.

Amazon Still Has An Unbelievably Unfair Tax Advantage Over Walmart

As I’ve said in an earlier Women’s Wear Dailystory, Amazon’s online presence to date has brought it a significant, and ultimately unfair, tax advantage over brick-and-mortar retailers, including Walmart. Being online has meant that the retailer can avoid most state-based regulations and tax structures. According to a recent report by Bloomberg, since 2008 Walmart has paid $64 billion in corporate income tax, while Amazon has paid only $1.4 billion. This is despite the fact that, in the last 24 months, Amazon has added the value of Walmart to its market cap, according to Business Insider.

This has got to change if the entire retail sector has any chance of competing.

Why does this happen? Business Insiderreported that Amazon only collects taxes on sales of inventory that it owns (first-party sales). However, Amazon is also a platform that sells merchandise owned by other sellers (third-party sales). About half of the goods sold on the Amazon platform fall into this category, which means that Amazon leaves sales tax collections to the 2 million merchants on its platform. Hence, third-party sales still get the taxpayer subsidy.

Amazon Is Forever A Blind Spot On Wall Street

Wall Street has turned a blind eye to all things Amazon for two decades, including profits.  As long as the company grew, all was well. And grow it did.

Compare Wall Street’s very different reactions to the second quarter earnings announcements of Amazon vs. Walmart.

Amazon missed earnings expectations of $1.42 per share, reporting 40 cents per share, a 78% miss (net income of $197 million), with a bleak outlook for Q3. The results? The markets barely shrugged, registering a meager three percent stock price drop.

Meanwhile, coverage of Walmart’s second quarter results by Reuters noted earnings per share of $1.08, exceeding the analysts’ average estimate of $1.07. Further, sales in U.S. stores open for at least one year exceeded expectations, store visits were up and total revenue increased 2.1 percent to $123.4 billion from a year earlier. The response? This Reuters headline says it all: “Wal-Mart's profit margins fall; quarterly outlook disappoints,” and a three percent drop in stock price.

Additionally, according to an analysis by 247WallStreet.com, the earnings disappointment was in part because online sales were not resulting in profits. With e-commerce growth coming in at 60 percent, it’s clear that investors are treating Walmart and Amazon as distinctly different businesses.

Why? Amazon never set a track record for profit and considered low profit part of the growth game. According to a recent Quartzstory, “Amazon Just Proved—Again—That It Can Do Whatever the Hell it Wants,” it wasn’t until 2015 that Amazon started to regularly turn a profit—and this is a company that’s been public since 1997.

">

A customer carries a basket while shopping for school supplies at a Wal-Mart Stores Inc. location in Burbank, California, U.S.

It’s been widely reported this holiday season that Walmart is closing the pricing gap with Amazon, but is cheaper pricing enough? After decades of squeezing out local competition with the lowest prices and an “all under one roof” approach, are the online convenience of Amazon and the migration to online shopping giving Walmart a taste of its own medicine? Maybe.

With e-commerce sales growing three times faster than in-store sales, according to a recentstory, Walmart is certainly fighting the fight, and their online strategy seems to be working. While Amazon.com is still the king of holiday e-commerce spending (capturing as much as 50%), Walmart inched up to 10 percent of online spending between Black Friday and Cyber Monday according to research by GBH. While this seems like a sliver compared to Amazon, it represents a pretty sizable increase of 50 percent over last year.

However, as Walmart works to leverage its enormous physical footprint by offering lower prices in its local stores than on its website -- sometimes cheaper than Amazon -- one has to wonder whether Amazon’s displacement of Walmart has made the company a modern day version of the “mom-and-pop” shop in discount retail.

Regardless, the question remains whether the flex of Walmart’s physical muscle and its increasing online sales will be enough to compete long-term, particularly against a competitor that looks like a retailer, but is treated more like a startup. Here’s why.

Amazon Still Has An Unbelievably Unfair Tax Advantage Over Walmart

As I’ve said in an earlier Women’s Wear Dailystory, Amazon’s online presence to date has brought it a significant, and ultimately unfair, tax advantage over brick-and-mortar retailers, including Walmart. Being online has meant that the retailer can avoid most state-based regulations and tax structures. According to a recent report by Bloomberg, since 2008 Walmart has paid $64 billion in corporate income tax, while Amazon has paid only $1.4 billion. This is despite the fact that, in the last 24 months, Amazon has added the value of Walmart to its market cap, according to Business Insider.

This has got to change if the entire retail sector has any chance of competing.

Why does this happen? Business Insiderreported that Amazon only collects taxes on sales of inventory that it owns (first-party sales). However, Amazon is also a platform that sells merchandise owned by other sellers (third-party sales). About half of the goods sold on the Amazon platform fall into this category, which means that Amazon leaves sales tax collections to the 2 million merchants on its platform. Hence, third-party sales still get the taxpayer subsidy.

Amazon Is Forever A Blind Spot On Wall Street

Wall Street has turned a blind eye to all things Amazon for two decades, including profits.  As long as the company grew, all was well. And grow it did.

Compare Wall Street’s very different reactions to the second quarter earnings announcements of Amazon vs. Walmart.

Amazon missed earnings expectations of $1.42 per share, reporting 40 cents per share, a 78% miss (net income of $197 million), with a bleak outlook for Q3. The results? The markets barely shrugged, registering a meager three percent stock price drop.

Meanwhile, coverage of Walmart’s second quarter results by Reuters noted earnings per share of $1.08, exceeding the analysts’ average estimate of $1.07. Further, sales in U.S. stores open for at least one year exceeded expectations, store visits were up and total revenue increased 2.1 percent to $123.4 billion from a year earlier. The response? This Reuters headline says it all: “Wal-Mart's profit margins fall; quarterly outlook disappoints,” and a three percent drop in stock price.

Additionally, according to an analysis by 247WallStreet.com, the earnings disappointment was in part because online sales were not resulting in profits. With e-commerce growth coming in at 60 percent, it’s clear that investors are treating Walmart and Amazon as distinctly different businesses.

Why? Amazon never set a track record for profit and considered low profit part of the growth game. According to a recent Quartzstory, “Amazon Just Proved—Again—That It Can Do Whatever the Hell it Wants,” it wasn’t until 2015 that Amazon started to regularly turn a profit—and this is a company that’s been public since 1997.

Let's block ads! (Why?)