March 7, 2021

Walmart: a new ecommerce giant takes shape

Dr Peter Mowforth

Walmart just bought India’s Flipkart for $16 Billion along with a string of other ecommerce pure-play businesses such as for $3.3 Billion. Meanwhile, to help them afford it, Walmart plans to sell their poorly performing UK-based Asda to Sainsbury’s for £7.7 Billion.The differing approaches behind these moves is all about corporate strategic thinking. With every successful company there are the key decision makers who define both the vision and the strategy for the business. If you look at Walmart’s recent behaviour it’s not difficult to see what that might be. It’s ecommerce, ecommerce and ecommerce. Flipkart may be costing them a lot of money but there is a clear and simple logic. Flipkart is currently the largest ecommerce player in the world's most populous country. What’s more, that country is growing at an impressive 7.1% - which is higher that China and way ahead of all other major economies. While the purchase may not have made short-term economic sense (as seen by the resulting dip in share price), it does signal a strong strategic shift in favour of online trade. The move can also be seen as an attempt to block Amazon’s juggernaut expansion into this key market.Meanwhile, to help fill Walmart’s war chest, Sainsbury's is offering to buy their UK offshoot Asda. Sainsbury’s thinking is set by two factors - neither of which have anything much to do with ecommerce. The first is as an attempted defence against the recent rise in UK high street market share by Lidl and Aldi. The second is their obsessive-compulsive focus in wanting to challenge Tesco to become the UK’s high street top-dog. To me, Sainsbury’s strategy comes across as short-term, local and, above all, defensive. Forcing together a couple of mediocre performers with different cultures, technologies and market positions is, I suspect, unlikely to create a new super-player.Meanwhile, the elephant in the room is Amazon. It’s recent purchase of  Whole Foods for $13.7 Billion has provided them with a massive footprint challenging the dominance of traditional supermarkets. Amazon also has a deal with Morrisons to provide over 40,000 product lines to UK customers using its Pantry and Prime service. Amazon even has has a complete Waitrose store available on the Amazon site itself. I find it interesting that, unlike the other major UK supermarkets, Tesco have chosen not to operate a channel through Amazon. Instead they operate their marketplace strategy using an outlet store on eBay. This move does show different strategic thinking. While it remains unclear from their published accounts how each of the online and offline channels are contributing to profits, it’s worth noting that their just published accounts show a jump in overall profits of over 28%.When you start to think about who are going to be the winners it’s always important to factor in the size and value of the players involved. The following table shows the market capitalisation for the various players mentioned so far:

What stands out with Walmart is that when you compare their corporate strategy with other retailers, more than any other historically traditional business, they are divesting themselves of poorly performing high-street operations in favour of pure-play ecommerce operations. Given the size of the company, the speed with which these changes are being implemented is all the more impressive. How each of these different strategies will perform is not guaranteed. That said, all that we can say for sure is that, in a remarkable short period of time, we now have another ecommerce giant competing on the global stage.

Latest Posts from the Ecommerce Excellence blog

Want to be informed of upcoming webinars & events?