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First Thoughts
  By Dan Gilmore - Editor-in-Chief  
     
   
  March 6, 2015  
     
 

Supply Chain News: Walmart and Amazon by the Numbers

 
 

I think it is rather safe to say that the two most prominent US retailers today are Walmart and Amazon.com.

Gilmore Says:

Walmart doesn't disclose ecommerce sales, but did say for 2015 they were up 22% globally. That would put it a bit behind Amazon's growth, which saw merchandise sales up 24.7% worldwide.


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Walmart earns that place due to its stature as the world's largest retailer (and company) and one that represents often a substantial share of many consumer goods companies' total sales. Amazon earns a spot because it is the dominant eCommerce company, which is where all the action seems to be right now, its phenomenal growth (slowing down somewhat now due to the law of big numbers), and its incredibly aggressive innovation in eFulfillment and more.

So we've been looking at both of these retail giants "by the numbers" in recent years - which as I will explain in a second, is harder than you might think. What Walmart and Amazon are doing is obviously of interest to most other retail and consumer goods manufacturers, and I hope others as well, as in the end almost every company is connected to the retail supply chain.

So let's start with Walmart, which just reported its full year earnings, ending its 2015 fiscal year on Jan. 30.

I will simply say that while Walmart is an incredible giant, its growth has slowed dramatically of late. As can be seen in the chart below, Walmart's US (Walmart stores + Sam's Club) sales grew very rapidly in the beginning years of the 2000s, primarily by adding new superstores carrying groceries at a rapid pace into new markets.

But that growth was soon decelerating, and the recession year of 2009 started a pattern of very low growth that is not much above inflation on average, meaning real growth is almost flat. US sales reached $288 billion last year, more than double the $139 billion the company had in 2001, but the pace of that growth has slowed dramatically, certainly putting some tensions inside the offices in Bentonville.

 

And surprising to me, international growth has also plateaued, despite an awful lot of attention and investment there (naturally enough, as US growth opportunities shrank). International sales last year were $136.1 billion, down a bit from the $136.5 the year before that, and little above the $135.2 billion on calendar year 2012. Interesting.

Walmart doesn't disclose ecommerce sales, but did say for 2015 they were up 22% globally. That would put it a bit behind Amazon's growth, which saw merchandise sales up 24.7% worldwide.

Not all that many years ago, there were (I think legitimately at the time) concerns about Walmart gobbling a giant share of the US retail market, but with the recent very modest growth Walmart's share of retail has also flattened. We developed a methodology several years ago, where we compare Walmart's US sales versus relevant US retail - total retail minus autos and parts, gas station sales, restaurants and fuel distributors. It's not quite perfect because Yes Walmart does sell some gasoline, but they don't break it out. I think what we have is pretty good.

By that measure, Walmart had an 11.3% of US retail sales in 2014, same as the year before, and down from a peak of 12.2% in 2009.

Now let's turn to Amazon, a company that provides a lot of numbers but getting real insight from them takes some work. That is because of its several business units and how it computes certain ratios, as I will explain in a moment.

Overall Amazon revenues were up 20%, but that includes digital media sales and its rapidly growing web services unit. I think it is more interesting to look at Amazon's merchandise sales, as shown in the chart below.

That shows Amazon was able to grow merchandise sales 28.5% in North America last year, about the same as the year before. Impressive, though still down from the 50% type growth we were seeing through 2011. International merchandise sales growth (19%) was solid but is slowing faster than North America.

One thing that vexes me is that I do not understand how and where Amazon books revenue for its "marketplace" service, where a customer is buying not from Amazon but direct from the supplier. Do Amazon's fees for that go into merchandise sales, or its web services unit? I think the latter, but I am trying to confirm. All this is complicated by the fact that sometimes Amazon does the fulfillment for these marketplace sellers.

In the end, I am trying to adjust the numbers Amazon reports for things like shipping and fulfillment costs against the right denominator.

For example, Amazon provides its net shipping costs - what it spends versus how much it receives from Amazon customers. Net shipping costs in Q4, for example, were $1.4 billion, and about $4.2 billion for all of 2014. And we remember when companies used to make money on shipping.

The Amazon figures report shipping costs as a percent of worldwide sales - and over the last five quarters that was in the 4-5% range. That's high enough, but SCDigest then compared those shipping costs just against merchandise sales - and the picture is worse, as shown in the graphic below.

 

Using that denominator, shipping costs are more in the hefty 6-7% range of relevant sales - quite a meaningful difference.

I am out of room, even though I have more - such doing the same sort of adjustment to Amazon reported fulfillment costs. Do you like this stuff? Let me know - we'll get more out somehow.

Any reaction to these numbers from Amazon and Walmart? Any other data you would like to see? Let us know your thoughts at the Feedback button or section below.

 
 
     
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Recent Feedback

This is a great article, Dan! It's fascinating to see that while Walmart is showing growth year-over-year, it is declining as a percentage of the total retail market as you depicted. Of course, it had the highest percentage of retail market in 2009, when the recession hit, which goes to show that people are scouring for bargains when the economy isn't so great. The Amazon comparison was great. I would be curious to see Amazon’s percentage share of the US retail market (merchandise only) – similar to the Wal-mart comparison you had in your article.

Appreciate the great insight!


Pervez Siddiqui
NA
Johnson & Johnson
Mar, 06 2015

Regarding the Amazon - WalMart comparative.  Please continue the research.

I think you are heading in the right direction.

As more people gain the awareness, shipping and handling cost have become a major cost component for them and a major profit center for the suppliers, I believe attention will shift from strictly a product based cost comparative and to a total cost of delivered goods comparative.


Dan Curran
NA
Worley Companies
Mar, 06 2015

One of the lessons I gain from your article is just how difficult it is to interpret figures when someone else is trying to put them in the best possible light, but I encourage you to do more of this because we have in recent years taken far too much for granted.

I studied Economics at University for 3 years and have been in business for over 40 years but have become increasingly disillusioned by the “smoke and mirrors” approach of senior management and their advisors whether in company or governmental environments. Whilst not wishing to return to the strictures of Charles Dickens's Mr. Micawber he at least recognised, albeit belatedly, the necessity to keep cash flow positive and not pile up debt. So much growth is founded on either illusory added value and/or pyramids of unsustainable debt.

The recent pantomime over here in Europe regarding the ongoing bail out of Greece and defence of the euro is just the latest chapter in the tale of financial self delusion. At the end of the day we need to ask who holds the IOU and what will happen when they want their cash?

But perhaps I am just being naive and should recognise the reality of the three classic responses to the question: What does 2+2 make?

The Mathematician immediately answers 4; the Economist will say after some thought: "Well on one hand it is x, but on the other hand it is y"; whilst the Accountant will say without hesitation: "what do you want it to make?"


David MacLeod
NA
Learn Logistics Limited
Mar, 06 2015

Yes…very interesting article on Walmart and Amazon. I am curious how Amazon's shipping costs versus "relevant" sales matches up to Rosalyn Wilson's state of the logistics union report. It is not totally clear to me from your article which components were included in the Amazon shipping costs category in relation to the logistics costs that Rosalyn includes.

Thank you for all the insight you provide in Supply Chain. I appreciate your contributions to our profession.

Editor's Note:

The shipping costs are what Amazon spends in Outbound transportation costs net of what they get from customers for shipping, either on per order basis or through subscribing to Amazon prime. So, even with getting some billions from customers for shipping, Amazon still lost some $4 billion on shipping last year - for example, Amazon prime customers ordering lots of stuff on cost more in transportation than the cost of the service.

There isn’t really a connection to the Wilson stuff, I don’t think. Note a big chunk of the costs she calculates are "warehousing costs" - which are not included in  the Amazon shipping costs.

Amazon does report "fulfillment costs" as a percentage of revenue, but here again there is a denominator issue. Amazon reports fulfillment costs as a percent of total revenue, when obviously marketplace sales and web services don't involve any fulfillment costs, making the percentage claimed lower than if you looked at fulfillment costs versus merchandise sales, as I did with shipping costs.

Hope that makes sense.

Amazon will be breaking out its web services number starting here in Q1, which will help.

Dan Gilmore

 


John Bunker
Senior Director of CLC/Warehousing Solutions Sales
Hellmann Worldwide Logistics
Mar, 06 2015

This is excellent.

Looking forward to the fulfillment % of sales.


Alex Fraser
NA
Fraser Direct
Mar, 06 2015

This is absolutely fascinating information. I would love to see the rest of the data behind Amazon as it increasingly competes with WMT.


Carl
Manager
Ebro
Mar, 06 2015

This is a great article. I appreciated the Amazon review on logistics/merchandise sales - E/R. Although I am in a B2B model (versus Amazon’s B2C business), I found this information quite useful. Every quarter I measure our logistics spend against revenue. I shared this article with key stakeholders on my team.

 

BTW – globally our warehousing and transportation net spend E/R is targeted in the 2-3% range, depending upon region.

 

I loved the line – “And we remember when companies used to make money on shipping”.


MARK STEBBINS
DIRECTOR NA LOGISTICS & WAREHOUSING
ALCATEL-LUCENT
Mar, 08 2015

Thanks for the update on Walmart and Amazon.  I liked the approaches you have taken to pull out e-commerce, international growth and share compared with all retail.  Interesting to see Amazon's net shipping costs and percent of sales.

I look at both these organizations at the top level using Strategic Profit Models (SPM).

Here are things I noticed:

  • Walmart's YTY revenue growth was $10,257M (2.2%)
  • Amazon's YTY revenue growth was $14,536M (19.5%)
  • Walmart's Gross Profit percentage was flat YTY increasing to 24.9% from 24.8% in the prior year
  • Amazon's Gross Profit percentage increased from 27.2% to 29.5%
  • Despite the margins, Walmart Net Profit percentage was 3.4% compared with Amazons (.3%)
  • Inventory Turnover was basically the same for both: 8.1 turns for Walmart versus 8.0 for Amazon
  • Walmart's Cash to Cash Cycle was 12.1 days with Amazon at-24.9 days
  • GMROI was 2.69 for Walmart and 3.35 for Amazon 


David Armstrong
President
Inventory Curve
Mar, 09 2015

Nice detailed breakdown.  Amazon's supply chain model is much more scalable in my opinion and offers additional benefits with its prime service that Walmart just cannot match.


Peter
Supply chain Consultant
Operation Consulting Group
Mar, 11 2015

Excellent article, and interesting approach at extracting the data as best you could.

We all know that Amazon loses money on shipping, but I have to think that the 30 (or 40?) million Prime subscribers offset some of those shipping costs to a significant degree. Walmart is dipping their toes in the marketplace water also, but it seems a half-hearted attempt at best.  

I can't wait to see Amazon's web services numbers. 


David Pavlicko
Marketing Director
AVI-SPL
Apr, 07 2015

I appreciate you bringing this type of analysis to the table as we see a still relatively new retail paradigm being explored with two giants in the retail marketplace.

I would be curious if there's a reasonable way to also factor in the economic value of Amazon providing the delivery to me versus Wal-Mart providing me a consolidation point (their stores).  Me taking an hour out of my day to travel to Wally World or anywhere else to get air filters, a dvd, a iphone adapter, etc. causes significant economic costs that are born specifically by me and not by Wal-Mart.  Amazon basically pays that cost (or I do in prime or shipping expense - but its included in my price). All other things being equal, for a non-urgent good, I'm clicking and receiving and not wasting the time for more and more items all the time. Watch out Wal-Mart for automated replenishment - you're going to get punched again in the top line.

Also, in the meantime, I'm assuming that Amazon will be able to continually scale some efficiencies making this even more attractive and less costly for them to provide much more quickly than Wal-Mart will be able to with their existing network. 

What a battle and I'm glad that we all can benefit from it in some manner.


Douglas Oetinger
VCP Solution Specialist
Oracle
Apr, 13 2015

As a supply chain student, this was a great article to read because it really connected the things we learn in class to the real world. It was intresting to see how you compared Amazon and Walmart from different points, but I too wish you would have shown/ had a graph of Amazons' share of the US Retail Maket like you did for Walmart. Amazon is growing at such a rapid rate, which can be a bit scary.

But overall it was a very insightful article.


Mona
Student
UT Austin
Apr, 14 2015


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