Supply Chain News: Walmart and Amazon by the Numbers 2016

Our Annual Review of the World's Two Most Important Retailers

I think it is rather safe to say that the two most prominent US retailers 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 often a 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).

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? Click here to send us your comments

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 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 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 substantially down. 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 willl 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 change - 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.

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