My column a few weeks ago on Walmart and Amazon by the Numbers 2016 once again 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, as last year, with some additional data and charts.
Gilmore Says.... |
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| Doing the same calculation with Walmart but also subtracting the dividend leaves it with just $9.6 billion in free cash - just $2.3 billion more than Amazon on $370 billion more in revenue. |
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I will again 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 in context, as for example, in my unique analysis of Amazon's shipping costs as a percent of sales.
OK, to first 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 7.0% of total retail sales last year, up from 6.5% in 2014 - but those total retail includes sales of cars, gas stations, restaurants and a few other categories that are not really relevant for comparison.
So, we compute the numbers based on the same formula we used in the last column to analyze Walmart's share of US retail, for which we take total retail and subtract out those non-relevant categories. Using that formula, ecommerce sales were a much higher 10.9% of total retail sales in 2015, up strongly from 9.9% in 2014. Of course, that share is much higher in some product categories, such as electronics and apparel.
In my first column, 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 sharply, and the recent big slowdown in international is a bit puzzling (though rise of the US dollar is clearly playing some role).
The cumulative average growth rate (CAGR) for each unit and total sales is shown beneath the chart. As you can see, Walmart has had an average CAGR of a pretty decent 4.8% for total sales from 2004 through 2015, 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 2015. But basically for now it is a breakeven business, making a little or losing a little each year and quarter, as shown in the chart below, where the 2015 $596 million profit was just 0.5% of sales.
But others say look instead at Amazon's cash flow from operations, which paints a better picture, and indeed operating cash flow is much higher as a percent of revenue than Walmart's of late, as shown in the chart below. Note, however, the consistency of the Walmart numbers, for good or bad. Wamart is what it is.
Interestingly, I believe the significant increase in Amazon's cash flow number last year came from two areas: a big slow down capital expenditure and a $2.5 billion increase in accounts payables, the latter of which which accounted for about 21% of operating cash flow and about 50% of increase in cash flow. Was that just due to the impact of fast growth, or was Amazon really stretching out payments to suppliers? Don't know.
But there is operating cash flow and then what is called "free cash flow," or operating cash flow minus capital expenditures, and here the story changes quite a bit in 2015
While Amazon had operating cash flow of $11.9 billion in 2015, and had CapEx of about $4.6 billion, actually down a bit from 2014, So that means CapEX was just 38% of operating cash flow, way down from a whopping 72% in 2014.
Walmart, on the other hand, had CapEx of about $11.4 billion (also down a bit from 2014) against $27.3 billion in operating cash flow, or 41% - a higher ratio than Amazon! (Note: as a proxy for official CapEx, I am using spending on real estate, equipment and technology). Importantly, Walmart, however, also has to pay a dividend from its cash flow- $6.3 billion worth last year - while Amazon does not. So Amazon's operating cash flow minus CapEx spend = $7.3 billion. Doing the same calculation with Walmart but also subtracting the dividend leaves it with just $9.6 billion in free cash - just $2.3 billion more than Amazon on $370 billion more in revenue.
In the first column I 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 - 7.3% in Q4.
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 again of 17.7% of merchandise revenues
last year, the same as in 2014. No wonder Amazon can't make any money -
when do the savings from all those Kiva robots start kicking in?
I could do more, but think that's enough for awhile - unless convinced otherwise.
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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