The whole world continues spinning crazily after my cancer treatment began in late April; And a lot has been going on in the Technology, Politics and Finance worlds. Even though I attempted to get some rest, but the buzz of overflowed data inhaled me like a magnet, and dragged me back into the digital information world.
And among all the biggest news happened daily, Amazon (AMZN)'s US $13.7B acquisition ($42 per share in an all-cash transaction) of Whole Food Market (WFM) was the most shocking one to both outsiders and insiders but not a surprise to me at all. Contrarily, in about a week ago before the acquisition when AMZN announced it begins accepting food stamp from those participating in Supplemental Nutrition Assistance Program (SNAP), I had posted "The battle between AMZN vs WMT officially begins" on my personal FB and similar tagline on TWTR account (Follow Me).
In my option, the food stamps acceptance announcement is to clearly publicize its customer expansion into the core demographic of WMT: low-income household, elderly and disables, and declare an official retail war between two giants. Their resentment all begins from Amazon Prime Day in July 2015 while Walmart started losing its shine to shareholders and was being often compared with AMZN by journalists and market analysts in revenue growth, market cap and new customer acquisition rate. Therefore, WMT desperately chose engaging an online business fight by broadly advertising 2,000 selected items with the market's lowest price. Even so, WMT, the 11,700 stores Godzilla, was in no position to arm wrestling with the online King Kong, AMZN. Therefore, in Aug 2016, for defending its retail empire, WMT made a US $3B cash acquisition (and up to $300 million in stock paid out over time to the founders and other selected individuals at the company) of the New Kid on the Block in eCommerce, Jet.com, founded by the legendary CEO founder, Marc Lore, whom previously sold his Diapers.com to AMZN for US $545M in 2011, and worked there for over 2 years before aiming to beat his former boss Jeff Bezos thru his new venture (Jet.com) cofounded in 2014. After reviewing his entrepreneurial journey in brief, you'll now understand the causes why Doug McMillon was able to successfully establish such an uneasy marriage (acquisition proposal in the 2nd time ) and recruit the online business guru. This is only the beginning of an epic battle in the US $5+ Trillion retail market.
Per Jack Ma, the Founder Chairman of Alibaba Group (BABA), the "New Retail" concept ― the integration of online, offline, logistics and data across a single value chain will be embraced in the new century of retail business and services globally. And as noted, both AMZN and WMT have already begun to pursue the same path. Especially the online King Kong, it's never too shine to show its ambitions in conquer/integrate online and offline business. Furthermore, building a spider logistic network of its own named Prime Air, leased 40 airplanes and patented new drone technology to make deliveries. Last, but not least its cloud business division, Amazon Web Services (AWS). On the other hand, the Godzilla has not been just resting to enjoy its lion share of the retail business. Besides its pre-existed gigantic retail store and logistic delivery network, its WalmartLabs division, with a mission to "building an internet technology company inside the world's largest retailer", has been quietly developing its own open source cloud platform - OneOps and other mobile solutions to strengthen its own business infrastructure and their partners'. Not only both giants are competing in technology platform and logistic infrastructure, but their SCALING as well. And AMZN chooses the quick expansion method thru M&A. Thru the last decade, it had already acquired more than a dozen of small and big companies up to billions of dollars, such as the Year 2009 $1.2B acquisition of the infamous online shoe company, Zappo.com, founded by youngsters Nick Swinmurn (Left the company before sold), Tony Heish (CEO) and Alfred Lin (CFO & COO); 2014 $0.97B buy of Twitch.tv, the world's largest gameplay streaming network (35M unique visitors per month since launch) founded by the young entrepreneurs Justin Kan and Emmett Shear; And 2012 $0.78B buy Kiva Systems (Now, AmazonRobotics), a Massachusetts-based company that manufactures mobile-robotic fulfillment systems. And let's not mention Jeff Bezos' personal interest/investment like the reusable rocket company Blue Origin and the Washington Post.
Other than Disruptive Innovation, Vertical/Horizontal Integration is another major avenue for corporates to the unremitting revenue growth and maintain its market competitiveness. And AMZN is no exception. In years ago, with the strength of fast shipping logistic, unlimited shelve space (broad product selection), low storage/administration expense and so forth, its online book business model has revolutionized the bookstore retail business. Chains like the Borders and Barnes & Noble were being consolidated out from the market. But today, most interestingly, AMZN works backward and brings back the retail store experience to its customers. Numbers of Amazon Go/Amazon Books are opened over some major metropolitan cities, like NYC, Seattle, Chicago and San Diego. Why? Very simple - delivering the online/offline seamless shopping experience demanded by consumers. And after all, more than 80% of retail transactions still happened in physical stores, and online business couldn't be invincibly replaced all offline businesses. Therefore, the acquisition of WFM is completely aligned with its ambition to beat WMT becoming the retail king. Not only WFM acquisition will immediately benefit AMZN to gaining top line revenue, high-income metropolitan customers, logistic operation, experienced retail-chain talents, perishable supply chain, and most importantly, the retail front store presence.
In apparel and accessories category, per Cowen & Co., AMZN's US $16.6B sales (6.6% of total market share) has already surpassed Macy's this year as the largest online seller in the U.S. To further disrupt the fashion retail industry, AMZN introduced the Prime Wardrobe, allows consumers try their fashion before buy, or otherwise, make a free, easy return - an identical business model which had brought Zappos.com to succeed in the first place. So, it wouldn't be a surprise if AMZN, later on, makes acquisition of a fashion outlet for its radical expansion purpose. Moreover, its eagerness to be the US No.1 clothing seller (currently, WMT topped off the crowd by its US $23.8B sales) can be easily detected.
At last, who's gonna ultimately winning this epic battle? AMZN or WMT. It's still too early to determine (even AMZN's Market Cap is now almost twice as WMT), but one thing is certain that Sears (Its Canada operation has already filed bankruptcy protection in a day ago), Target, Kroger, JC Penny and a few more will be the first victims of this epic battle between two monsters. And whoever's able to disrupt itself and grow expeditiously under the constrained resource will be the new "Retail King" in the coming decades. And this is a battle definitely worth spending your time to study/watch.
As for BABA, "Go East, Entrepreneurs!" is a trojan horse strategy first opening its unified platform to the Global SMB selling to the China, then reversely eating their local markets. The fire of a Worldwide Ecommerce War, in which it's already lightened up in India and Southeast Asia, will be spread over to the States really soon. And stay tuned.
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References:
5. "The ECONOMIC IMPACT of the U.S. RETAIL INDUSTRY" by National Retail Federation