Management Info System

Traditional retail in the United States, the kind you find at the malls, and urban department
stores, is in trouble. The very large retailers such as Walmart, Macys, Kohls, Sears, and
Nordstrom all have reported about 1% to 2% sales growth since the recession of 2008. In
2017, Target, Macys, Sears, JCPenny, and others are closing hundreds of stores. Since 2000,
consumers have been shifting away from traditional retail goods like apparel and electronics

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(the mainstays of retail stores), and buying more services like vacations, exercise, dining, and
health care.
The much bigger threat to traditional retail is coming from online retail, mostly Amazon,
that has gobbled up the lion’s share of online retail (about 25% of all online retail), and has

been growing at astounding rates like 15% to 20% a year since 2008. Apparel and electron-
ics are also the largest sales items for online retailers, so the physical stores and the online

giant all compete selling the same goods.
Traditional retailers have spent over a billion dollars in the last decade trying to become
online retailers, and meet consumers wherever they want to buy, online, or at the store. It’s
called an “omnichannel” strategy: using multiple channels like physical stores and online
Web and mobile apps to sell products. Many traditional large retailers such as Walmart,
Macys, and Costco, have wound up in the top ten online retail rankings. But so far the
omnichannel strategy has not been especially successful in keeping up with Amazon’s
growth.
In what promises to be the online battle of the decade, the two biggest players, the heavy
weights, Walmart and Amazon, are going head to head for the consumer dollar. In a

broader sense, it’s the online-business model versus the physical- department-store busi-
ness model which was invented by Macy’s in 1870. But to be fair to the traditional retailers

who have developed their online and mobile sales channel, it’s more accurate to say it’s the
omnichannel model versus the pure-online digital model of Amazon.
Here’s how the two heavy weights shape up. Walmart’s revenues in 2016 were $485.9 billion
(the largest Fortune 500 company), it had earnings of $13.6 billion (about a 3% margin)
, and e-commerce sales of 13.7 billion (around 3% of total sales revenue). Walmart has
about 5,200 stores of all kinds in the U.S. It produces around $15 billion in free cash flow a
year, and has about $9 billion cash on hand. In 2017 Walmart’s market value is in the area
of $292 billion. It’s sales growth in 2016 was 1.8%, but its online sales have exploded by
63% over 2015 in part because of its purchase of Jet.com, but also due to its investment of
hundreds of millions of dollars in e-commerce operations, and omni-channel e-commerce.
Walmart employs about 2.1 million people (1.4 million in the U.S. alone), making it the
largest employer in the world and the U.S. That works out to $231,000 of revenue for each
employee.
Amazon’s revenues in 2016 were $135 billion (the largest e-commerce company, but only 35
in the Fortune 500), it had earnings of $857 million (about a 1.8% margin), and e-commerce
sales of $92 billion. In 2016 Amazon generated $43 billion in revenue from its Amazon
Web Services (AWS) cloud platform. Amazon has about $19 billion in cash on hand. In 2017
Amazon’s market value is about $566 billion, and its sales growth in 2016 was about 26%.
Amazon employs about 222 million people. That works out to $481,000 of revenue for each
employee.

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  1. What are the three key assets that Walmart can leverage (build on) to compete with
    Amazon and other online retailers?
  2. What is Walmart’s e-commerce strategy?
  3. Why isn’t Walmart worried about the channel conflict between its online sales and its
    store sales?
  4. Why is Walmart in-sourcing the development of its online operation, in part by acquiring
    technology companies rather than outsourcing development to low-cost countries and
    other domestic firms?
  5. Why did Walmart acquire Jet.com?
  6. How does Walmart’s fulfillment o

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