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First Thoughts
  By Dan Gilmore - Editor-in-Chief  
  March 19, 2015  

Supply Chain News: Walmart and Amazon by the Numbers Part 2


My column a couple of weeks ago on Walmart and Amazon by the Numbers proved very popular, with a number of readers emailing "give us more." That response, plus the fact that I have a lot of fun doing this, brings me back this week with some additional data and charts.

Gilmore Says:

No wonder Amazon can't make any money - when do the savings from all those Kiva robots start coming?

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Reader Feedback

I will quickly note that a few readers commented that my first column alerted them to the fact that you really have to dig into almost any numbers reported by someone to see if they make sense and/or understand what they really mean.

This is absolutely true, and I could give you many examples, but an easy one is the monthly numbers from the Federal Reserve on US industrial output. The number might spike say in July, generating glowing economic headlines. But if you look at the data closely it might have been because total industrial output includes utilities (and mining), and the jump might have been due to a very hot month in which everyone was cranking up the AC. SCDigest always just looks at the manufacturing numbers, for a better view of the real economy.

Ok, to put the numbers from both columns in perspective, let's first look at the rise of ecommerce. According to the Commerce Dept., ecommerce sales were about 6.5% of total retail sales last year - but total retail includes sales of cars, gas stations, and a few other categories that are not really relevant for comparison.

So, we compute the numbers based on the same formula we used last time to analyze Walmart's share of US retail, for which we take total retail and subtract out cars, parts, gas stations, fuel dealers and restaurants. Using that formula, ecommerce sales were a much higher 9.9% of total retail sales in 2014, up strongly from 8.8% in 2013. Of course, that share is much higher in some product categories, such as electronics and apparel.


Last time, we also graphed the annual percentage growth for Walmart's US retail sales, which have slowed noticeably in recent years. Below we show the Walmart numbers in absolute terms across its three reporting units: US, Sam's Club, and International. All units have seen the pace of growth slow, and the recent big slowdown in international is a bit puzzling.


The cumulative average growth rate (CAGR) for each unit and total sales is shown beneath the chart. it shows an average CAGR of a pretty decent 4.8% for total sales from 2004 through 2014, but that comes much more from the first half of that period than the last few years for sure.

Switching gears, Amazon get much criticism for its consistent failure to really make any money, though it eked out a small profit in Q4 after small losses the rest of 2014. But others say look instead at Amazon's cash flow from operations, which paints a better picture, and indeed operating cash flow is higher as a percent of revenue than Walmart's of late, as shown in the chart below. Note the consistency of the Walmart numbers.

But there is operating cash flow and what is called "free cash flow." The latter equals operating cash flow minus capital expenditures, and here is where Amazon's spending habits kick in. While Amazon had operating cash flow of $6.8 billion in 2014, it had Capex of….. $4.89 billion, or a whopping 72% of operating cash flow.

Walmart, on the other hand, had Capex of about $12 billion against $28.5 billion in operating cash flow, or just 42%. (You could look at this other ways, such as deducting gains on assets sold during the year from the Capex spend to get a net total, but my numbers tell the story as is). Walmart also has to pay a dividend - $6.1 billion worth last year - while Amazon does not, meaning Amazon can get away with spending more on fulfillment centers without that burden.

Ok, finally I previously calculated Amazon's net shipping costs as a percent of merchandise revenue, which is more relevant than looking at that ratio against total sales, which include electronic media and services for which no shipping is required. It was a hefty number - 6-7% of sales.

Now I am back this week doing the same thing for fulfillment costs - basically DC operations plus the depreciation expense for all those buildings and robots and reported as a line item by Amazon. We calculated the ratio of that expense - which doesn't include shipping, by the way - again against merchandise sales, as shown below.

Wow, fulfillment cost of 17.7% of merchandise revenues last year, up from 15.8% in 2010. No wonder Amazon can't make any money - when do the savings from all those Kiva robots kicking in?

I could do more, but think that's enough for awhile - unless convinced otherwise.

Any reaction to these additional 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

I think that you may be overlooking another difference between the two companies.  WalMart is not spending as much capx as a percent of FCF or OCF because it is not expanding at the rate that Amazon is.  WalMart CapX is replacement CapX, as in replacing or upgrading existing capitol assets.  If you go back in time, look at the 1980’s and 1990’s, the CapX percents were much higher. 





Operating Cash Flow












Stock Buyback





The table above is for the years 1985, 1995 and 2005.   In 1985 the company was still a regional retailer, covering the Southeast US and the Midwest.  The company was expanding at about 100 stores per year rate, and added a new distribution center in Iowa.  CapX was 61% of the OCF – and the company had a .50:1 debit to equity ratio.  Sam was running the company tight – making sure that the cash generated fueled the growth.


A decade later things changes.  The 1990’s saw the company expand across the country, and with it the CapX to fuel the growth.  By 1995 WMT had 30 DC’s, owned McLane Distribution, and had about 150 stores outside the US in Mexico and Canada.  The CapX to OCF percent exploded to 155%, and the Debit to Equity ratio climbed to .77:1.  The company had swallowed the Pace Warehouse Stores, and converted 99 old Woolco stores into Sams and WalMarts.  This is the age of the Superstore concept, scaling down a bit from the Hypermart pilots.

By 2005 the US based growth was mostly in same store growth, as the company started an aggressive remodeling plan to add full grocery to the existing fleet of stores.

The bottom line – growth takes money, and sometimes more money than what comes in.  WalMart is at a different stage in the maturity parabola than Amazon, where Walmart may be at the Apogee or beyond in growth while Amazon is still climbing.

Editor's Note:

You are right, but what makes this dynamic different is that WMT and AMzN are in a death fight, so saying WMT is in a different place while right, is to a certain extent, is at the same time not relevant. Another reader pointed out that if you add WMT’s dividend outlay to its capex, it is actually up to 52% of operating cash flow, much closer to Amazon’s percentage.

To me the most interesting dynamic is that AMZN can continue to get away with this, whereas WMT or anyone else would be pummeled on wall street.

Dan Gilmore


David Scheider
David K Schneider & Company, LLC
Mar, 21 2015

I loved your article.  I will look for the first one you mentioned because I did not read that one yet.

I completely agree with your assertion that Amazon is not getting a payback on Kiva, at least yet.  We looked at Kiva quite a bit and could not calculate a payback.

My question is – although I agree that their costs must be going up, when looking at fulfillment costs as a percentage of merchandise revenues, could this also be going up because they are doing a higher percentage of Fulfillment by Amazon and thus incurring fulfillment costs but no merchandise sales (only fulfillment services revenue) on all the Fulfillment By Amazon merchandise?

Would love to hear your thoughts on this question.

Tim Barrett
Not Provided
Barrett Distribution Centers
Mar, 21 2015

Would you say that Amazon is doing what we tell business students to do, reinvest cash flow in the business, whereas Walmart is not reinvesting as much of their cash flow?  Instead they are paying off investors with dividends.

If you add Walmart's 12bil + 6.1bil dividends you get 18.1 out of 28.5 bil or 63%, not so different from Amazon's reinvestment percent of 72%. And we know Amazon is a leader in investing for the future.

So who are the Walmart investors who are taking this?  And who are the Amazon investors?

Institutions hold 30% of shares of WMT, 51% are held by insiders and 5% owners.. That is all I could find quickly.

Amazon shares are 68% owned by institutions. 18% are owned by insiders. Only Jeff Bezos is a 5% owner. Source: Yahoo finance

Bruce Hartman
Not Provided
Not Provided
Mar, 21 2015

People have been saying things like this about Amazon for 20 years.  It's a good thing Jeff Bezos just continues to ignore them.

Michelle Meyer
Not Provided
Not Provided
Mar, 21 2015

Thank you for your analysis. I do not understand what the meaning of “The latter equals operating cash flow minus capital expenditures, and here is where Amazon's spending habits kick in.” Can anyone explain it?

May, 21 2015

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