Wal-Mart's Online Retail Segment Is Growing Faster Than Amazon.com

Amazon.com (NASDAQ: AMZN  ) now has something else to worry about: Wal-Mart Stores'   (NYSE: WMT  ) online sales are growing faster than its sales are growing. The latest figures show that the theory that Wal-Mart is Amazon's biggest potential competitor holds some water.

The numbers indicate that Wal-Mart is obviously doing something right even though Amazon.com is still the king of online retail. Wal-Mart's worldwide Internet sales grew by 30% in the fiscal year ended on Jan. 31, while Amazon.com's sales increased by 20% in 2013, according to statistics compiled by Online Retailer.

The numbers indicate that Wal-Mart's online retail volume is rising, but it still has a ways to go to match Amazon.com. Wal-Mart only made $10 billion from its online segment, compared to Amazon.com's $67.5 billion in revenue.

Amazon.com is still the No. 1 online retailer, while Walmart.com is No. 4, Online Retailer reported. Yet the publication's editor, Dan Davis, thinks Wal-Mart could soon be in a position to challenge Staples for the No. 2 spot on the list of Top 500 online retailers. To reach No. 2, Wal-Mart's online sales will have to surpass both Staples and Apple, which is currently No. 3.

Amazon.com dwarfs Wal-Mart
Despite its recent success, Wal-Mart is still tiny compared to Amazon.com in the world of online retail. The Wall Street Journal noted that Amazon.com sold more stuff online than its 10 biggest competitors combined.

That means Wal-Mart might never be more than a niche player online simply because Amazon.com got there first. It also means that Wal-Mart will have to be extremely aggressive and spend a lot of money to pose any sort of credible challenge to Amazon.com. To get up to that $10 billion level in online sales, Wal-Mart had to spend $500 million last year.

Wal-Mart imitates Amazon.com
There is one major advantage for Wal-Mart here: it does not have to invent a new online business model like Amazon.com did. Instead, all it has to do is copy the business model created by Amazon and eBay. Amazon's biggest problems are that it has demonstrated that online retail is viable and it has shown others how to succeed online.

Wal-Mart is already copying part of Amazon's business model by adding new services. It just made a deal with autoinsurance.com to sell car insurance policies in several American states. Like Amazon, Wal-Mart is also building new online fulfillment centers.

Wal-Mart has learned something else from Amazon.com: if you don't have the capabilities, buy some smaller companies that do. Wal-Mart has purchased 12 e-commerce companies in the last three years, including search engine marketing expert Adchemy last week. Wal-Mart hopes to use Adchemy's technology to create a search engine to rival those at Amazon and Google.

Many of Wal-Mart's existing resources, such as the distribution centers for its stores and its Sam's Club membership stores, can easily be integrated into its online retail efforts. Wal-Mart is using some of its stores as fulfillment centers for Walmart to Go, its answer to Amazon Prime.

Another way online retail can help Wal-Mart leverage its resources is to allow the company to penetrate new markets without building stores. Neil Ashe, Wal-Mart's head of e-commerce, predicted that his company will soon be serving some nations solely through online retail. Instead of building stores in a country, Wal-Mart will simply ship items there from a fulfillment center, much like Amazon.com does.

Wal-Mart is playing to one of its greatest strengths here; namely, its ability to imitate competitors. After all, Wal-Mart began as little more than an imitation of K-Mart.

Foolish takeaway
Despite its revenue and its impressive ability to imitate, there's a strong possibility that Wal-Mart will never be anything but a niche player in the world of online retail. Yet that niche could be a very big one given the speed at which web-based retail sales are growing.

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  • Report this Comment On May 14, 2014, at 12:52 PM, trdr2012 wrote:

    All considered, your headline should have read...

    AMAZON.COM DWARFS WAL-MART

  • Report this Comment On May 14, 2014, at 12:56 PM, madmilker wrote:

    Growing faster ...

    as in...

    duh..!!

    20% of $67.5 billion...

    30% of $10 billion....

    and this is something everyone needs to invest because...

    duh..!

    duh..!

    duh..!!

    duh..!!!!!

    duh.....!!!!!!!

    Run that by me again...

    Growing faster...

    Well..

    I guess ...

    whatever you say...

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