Why Amazon and Walmart May Dominate US Retail

Last week, I came across this interesting tweet.

I tweeted over this tweet with the caption Amazon’s Wake, and it ended up being a pretty popular tweet. I did get some feedback as some observers wanted to make points that not all of these retailers failed because of Amazon. Toy’s R Us was a prime example since it seems a private equity group is more the cause of their troubles, however, whether you can draw a direct cause and effect of Amazon, there is no question these retailers and more are seeing more of their business move online.

The more I thought about the data behind this tweet, and much of the commentary from folks sending tweets my way on this data, I began to wonder if the future of US retail is destined for a duopoly controlled largely by Amazon and Walmart and then many small experience based retailers.

Why Amazon and Walmart?
Perhaps the question is more about why Walmart as it is hopefully obvious why Amazon is likely one of the market winners when it comes to US retail. Walmart has an interesting demographic, one that does not do most of its shopping online. This demographic profile of a Walmart shopper is a reason I think they can stick around. I also add Walmart because we know that price, and breadth/depth of selection are key ingredients to draw customers. If I had to pick any current US retailer who can maintain (not necessarily grow), it would be Walmart.

Looking at US retail shopping research, it could be argued Target has a chance also given they are the second largest retailer regarding monthly shoppers to Amazon and Walmart. But given the way Amazon is rolling, I’m not sure the US market will retain three dominant retailers. If I had to pick one of those who falls first, I’d bet on Target.

Amazon will always have a larger selection, and in most cases, a better price, but it is the seamlessness of their commerce experience which will continue to gain the loyalty of the most valuable shoppers in the US market. But I brought up the demographics of these shoppers for a reason. From most research I’ve seen, Walmart’s most regular shoppers tend to lean toward the bottom 40% of the market regarding income. And, for a variety of reasons, cash is still a common form of payment. Both of those aspects of a regular Walmart shopper help make the case those customers aren’t moving to Amazon anytime soon for the majority of their purchases.

That being said, I only expect Amazon to grow and in some areas encroach on Walmart as well. Especially for more commodity consumer packaged goods. Honestly, in the long run, I don’t see how Walmart and Target can maintain their physical retail size as it is inevitable certain areas of their stores will see large declines in sales due to Amazon.

Both Walmart and Target are working to compete with Amazon by adding more e-commerce options. Walmart is being the most aggressive by promoting many similar shipping perks to Amazon but without the monthly membership fee. Walmart’s, and other retailers, advantages over Amazon remain the e-commerce + in-store pickup. This is one area to watch to see if it can remain a competitive advantage.

Still a Long Road for Retail
It still feels like archaic times in the US regarding retail. Top tier parts of China that have much more seamless e-commerce and mobile commerce/payments, even parts of Europe, seem so much farther along. I always appreciate conversations with friends who live in China who come back and visit and can’t believe we American’s have to wait in lines.

To emphasize this point, I refer back to this chart I keep updating, on e-commerce as a % of retail.

Not the top of the y-axis is only 18%. Showing us that no country is yet above 20% of e-commerce as a percentage of retail. Certain areas of China are well over 20%, but as a whole, the country is still below. The US is creeping up to 20% but still not there. This chart shows how much headroom for growth still exists in e-e-commerce and should remind us of how much is still yet to change.

While there is still such a long road ahead, it seems crazy to pick winners today. That being said, it is hard not to see a world where Amazon doesn’t dominate the retail landscape and have a near monopoly on e-commerce. Yes, there will be fringe/niche marketplaces and offline retailers, but when it comes to the control of retail dollars, Amazon seems in the best position. Who comes in at number two or three remains the biggest question.

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Ben Bajarin

Ben Bajarin is a Principal Analyst and the head of primary research at Creative Strategies, Inc - An industry analysis, market intelligence and research firm located in Silicon Valley. His primary focus is consumer technology and market trend research and he is responsible for studying over 30 countries. Full Bio

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