sc digest
 
March 31, 2016 - Supply Chain Flagship Newsletter
border

This Week in SCDigest

bullet Walmart and Amazon by the Numbers 2016 bullet SC Digest On-Target e-Magazine
bullet Supply Chain Graphic & by the Numbers for the Week bullet Holste's Blog/Distribution Digest
bullet Cartoon Caption Contest Continues bullet Trivia      bullet Feedback
bullet New Expert Insight and Gilmore's Supply Chain Jab bullet On Demand Videocasts
  FEATURED SPONSOR: APEX SUPPLY CHAIN TECHNOLOGIES

 
   
 


Automated Supply Lockers Available from
APEX Supply Chain Technologies

Reduce Waste, Improve Productivity and Thrive in Real-Time Retail with Automated, Cloud-based, Self-service lockers for DC and POS Asset Management


 
 

 
first thought

SUPPLY CHAIN NEWS BITES


Supply Chain Graphic of the Week
Barriers to Better Retailer-Vendor Collaboration


bullet
New Transport Mode - Blimps?
bullet
More Warnings about the Impact of Robots on Jobs
bullet
Wage Increases in Japan Remain Near Zero Despite Desparate Hopes for Inflation
bullet
Parcel Drone Finally Takes Flight in US
   

NEW CASE STUDY PROVIDED BY APEX SUPPLY CHAIN



Download Complimentary Case Study

Cheney Brothers: Eliminating the Scanner Bottleneck and Boosting Accountability




CARTOON CAPTION CONTEST CONTINUES

Week of March 22, 2016 Contest



See The Full-Sized Cartoon and Send In Your Entry Today!

Holste's Blog: Preparing for the Adoption of DC Processing Technologies


ONTARGET e-MAGAZINE

Weekly On-Target Newsletter:
March 30, 2015 Edition


New Cartoon, Cloud WMS, Fred Smith Says Rates Must Rise and more



NEW EXPERT INSIGHT

The Compliance Networks Corner: Five Critical Supply Chain Steps to Ensure Merchandise Plan Execution




by Richard Wilhjelm,
Compliance Networks


GILMORE'S SUPPLY CHAIN JAB

Will Amazon Really Build Parcel Shipping Network?




by SCDigest Editor Dan Gilmore



New SCDigest Benchmark
Study on Global Sourcing & Trade Management



SUPPLY CHAIN TRIVIA


What do the years 1914 and 2016 have in logistics common?


Answer Found at the
Bottom of the Page



Walmart and Amazon by the Numbers 2016

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

Walmart earns that place due to its stature as the world's largest merchant (and company) and one that represents an often substantial share of many consumer goods companies' total sales. Amazon obviously earns a spot as the dominant ecommerce company, which is where all the action seems to be right now. Amazon continues its phenomenal growth - hardly even slowing down in the face of the law of big numbers - and has been an innovation machine in terms of fulfillment and more (e.g., Dash button, one hour deliveries, etc.).

GILMORE SAYS:

By our measure, Walmart had an 11.2% of US retail sales in 2015, basically flat over the past 5 years, and down from a peak of 12.2% in 2009.

WHAT DO YOU SAY?

Send us your
Feedback here

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. I have received many positive comments for this effort each year. What Walmart and Amazon are doing is obviously of interest to most other retailers 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 reported its full year earnings, ending its 2016 fiscal year, at the end of January.

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 sales (Walmart stores + Sam's Club) 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 soon decelerated, and in 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 $355 billion last year, not quite double the $188 billion the company had in 2002, but the pace of that growth obviously slowed down substantially. The Cumulative Average Growth Rate (CAGR) has averaged almost 5% since 2002, but slowed to 2.77% since 2010.


And surprising to me, international growth has also plateaued, despite an awful lot of attention and investment there. International sales last year were $123 billion, down from $136 billion the year before that, though the rising dollar is a key factor in that decline. Still, international is clearly not the Walmart growth engine once imagined.

Walmart for the first time this year is detailing its ecommerce sales, saying on a global and constant currency basis that on-line sales increased approximately 12% to $13.7 billion last year. That means the rate was probably less than 10% on a absolute basis ignoring the impact of the rising dollar. Either measure would put it well behind Amazon's growth, which as we will see below saw merchandise sales up 24.1% worldwide in 2015.

Not all that many years ago, there were (I think legitimately at the time) concerns about Walmart gobbling a giant, monopolistic share of the US retail market, but with the recent very modest sales growth Walmart's share of retail has simply flatlined. SCDigest developed a methodology several years ago, where we compare Walmart's US sales versus relevant US retail figures - total retail minus autos and parts, gas station sales, and restaurants/bars. 

It's not quite perfect because Yes Walmart does sell some gasoline, but they don't break it out in a way we can use. Nevertheless, I think what we have is pretty good - and does reflect a higher share of US retail for Walmart than if you do not exclude those categories, which is how it is usually reported.


By our measure, Walmart had an 11.2% of US retail sales in 2015, basically flat over the past 5 years, and down from a peak of 12.2% in 2009. It simply does not appear any more that Walmart will take over the retail industry. That is an interesting and important development- and seems unlikely to change to me. Would the FTC let Walmart buy say Kroger?

Now let's turn to Amazon, a company that provides a lot of numbers to analysts 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 2015 revenues were up 20% to $107 billion, 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 an amazing 30.8% in North America last year, up 2 percentage points from the year before even as the baseline level continues to rise. International merchandise sales growth was a slower 12.6%, but again the rising US dollar cut growth about in half of what it would have been otherwise.

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 reports its net shipping costs - what it spends versus how much it receives from Amazon customers. Net shipping costs in Q4, for example, were an incredible $1.8 billion, and about $5 billion for all of 2015. Let me say that again - that was $5 billion with a B in net shipping costs. No wonder Amazon struggles to turn a profit. And we remember when companies used to make money on shipping.

The Amazon figures do 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 - eliminating revenues from web services and digital media that have no shipping. Logically, this makes the picture worse, as shown in the graphic below, with net cots hitting a whopping 7.3% in Q4. So much for building fulfillment centers closer to customers. I will note the Gilmore household is on the Amazon Prime bandwagon, and easily make up our annual $99 fee in free shipping.


I am out of room, even though I have more - such as doing the same sort of adjustment to Amazon's reported fulfillment costs. Will do a part 2 as I did last year in a couple of weeks.

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.


View Web/Printable Version of this Column
   

On Demand Videocast:


Now is Finally the Time for WMS in the Cloud


As Supply Chain Software Moves to the Cloud, Barriers to Warehouse Management Joining the Party have All Fallen Away



What has changed, and what WMS technology developments are fueling this transition. We'll cover all that and more in this detailed, fast-paced broadcast.


Featuring SCDigest editor Dan Gilmore and Dinesh Dongre, VP Product Strategy, Softeon


Available On Demand

On Demand Videocast:


Trends and Issues Global Sourcing and Trade Management

Results from SCDigest's New Benchmark Study on Practices and Technology in Global Trade

You'll learn the results of the survey, unveiled in a new report launched with this Videocast. Not to be missed by anyone interested in global sourcing, global trade management and supply chain visibility.

Featuring SCDigest editor Dan Gilmore, Gary Barraco, Senior Director of Supply Chain Solutions at Amber Road, and Dan Gardner, President of Trade Facilitators Inc.

Available On Demand

On-Demand Videocast:


Using Supply Chain Modeling to Improve Operations and Outperform the Competition

PriceSmart Builds Optimized, Aligned and Dynamic Supply Chain Network

You'll learn about key new trends in supply chain design, where companies are finding the value, and learn the powerful story of how leading retailer PriceSmart has used network design tools to craft its network of the future to support growth, optimize flow paths, and right size inventory levels.

Featuring Frank Diaz, senior vice president, distribution and logistics at PriceSmart, and Toby Brzoznowski executive vice president at LLamasoft and SCDigest's Dan Gilmore

Available On Demand

YOUR FEEDBACK

Just some quick feedback this week we received from our expert columnist Mike Watson's recent piece on lessons we might learn from Alabama football coach Nick Saban relative to inventory planning.

Feedback on Lessons from Nick Saban:

comma

Good clear direction for the coach (inventory manager).

Unfortunately, the owners and the fans DO look at the scoreboard and in many cases want short term results and push forcefully and loudly for short term reactions to item level events.

It takes a strong inventory manager with some degree of legitimacy and authority to be able to push back and affirm that we have the right game plan that will see us through to simultaneous improvements in inventory performance and service.

David Armstrong
Principal
Inventory Curve LLC

comma
 
 
comma

It was a very interesting analogy.

I would like to purpose a topic to be discussed in your posts. Demand Driven MRP is getting more attention for companies to manage their inventories. Demand Driven MRP forgets about forecasting and have a look to the real consumption. Demand Driven MRP supporters tell to forget about forecasting, it is most of the times wrong, guide your decision on real consumption.

What are your thoughts about it?

Juan Calle
TDM Transportes

comma
 
 
comma Editor Note: This Feedback specifically related to a video discussion between Mike Watson and SCDigest editor Dan Gilmore on a broadcast of our weekly supply chain video news, which can be found here:

http://www.scdigest.com/newsviews/16-03-14-2.php

I really enjoyed your interview with Michael Watson on SCTV and his inventory analogies with Nick Saban's football strategies.

One point made was "to focus on the individual item". This approach, which of course is right, has dramatic implications on the ubiquitous "ABC Class" approach used by so many to manage their inventories. In that approach thousands of items are grouped into a hand full of Classes. So you are left with hundreds of items, all different, yet all managed in the same way.

Moreover these Class systems are constructed arbitrarily. Many will say "the A’s are the top 70% of sales, the B's are the next 15%" and so on. The 70% and the 10% are long standing "folklore" with little rational basis. Managing items based on their actual individual characteristics (forecast, variability, cost and so on) is the only way an inventory system can be optimized.

Great point made by Michael and you.

Terry Harris
Managing Partner
Chicago Consulting

 

SUPPLY CHAIN TRIVIA ANSWER

Q: What do the years 1914 and 2016 have in logistics common?

A: 1914 - year the Panama Canal opened; 2016 - the year (it appears) the expanded Panama Canal locks will open (now scheduled for June).

© SupplyChainDigest™ 2003-2016. All Rights Reserved.
SupplyChainDigest
PO Box 714
Springboro, Ohio 45066
POWERED BY: XDIMENSION