Clouds are brewing over the global economy, yet two major retailers are taking on Amazon
by Ebiquity Marketing
Friday, August 23, 2019
The global economy is showing some signs that it might be wobbling its way towards recession. While unemployment in the U.S., the world’s biggest economy, is at a 50-year low and performance in many sectors is still encouraging, there are some indicators that the world may be heading for a prolonged period of economic downturn. These include extreme stock market volatility and what are known as inverted bond yield curves, which signal a rise in short-term risks and typically precede recessions.
The retail sector is always a reliable bellwether for how the economy as a whole is performing. Currently, global consumer confidence remains high and – with some exceptions – people are consuming and shopping. At the end of last week, two of the world’s biggest retailers in the world’s two biggest economies announced their most recent financial results. These companies also sit on either side of the brewing US-China trade war over import and export tariffs, and everyone was watching their results closely for signs of trouble.
Both companies reported solid and strong – if not stellar – previous quarters. For neither company is there evidence yet of significant effects from the rhetoric and bilateral imposition of new tariffs. As I commented on the BBC Business Live programme last Thursday, it’s probably too early for any material impact to have filtered through to consumer spending and retail performance.
The real driver of their performance is the fact that both businesses are well positioned to compete in ecommerce and take on Amazon.
For most of its existence, Walmart has been a bricks-and-mortar retailer, with more than 5,000 stores and clubs across the U.S. and more than the same again overseas. The threat and growing rise to dominance of Amazon – including same-day delivery from Amazon Prime Now and Amazon Fresh for groceries – means Walmart has had to adapt fast to new trading realities. Amazon currently accounts for 38% of online retail in the U.S., while Walmart has 4.7%, although that’s grown from 2.6% in just three years.
In its latest earnings update, Walmart reported that its online sales for the quarter were up 37% year over year, beating their own high-end projections. With a countrywide footprint and long-established relationships with suppliers and manufacturers in every category, including grocery and entertainment, Walmart is well-positioned to tackle e-commerce. This year alone another 800 stores will be enabled for online ordering and delivery, and the company is in prime position to match Amazon’s offer of nationwide, same-day delivery for groceries and consumer products.
Alibaba, on the other hand, is already a dominant e-commerce player in China. It has more than twice as many regular, monthly users of its e-commerce platforms as there are consumers in the U.S. (721 million and rising), making it the country’s most valuable and successful brand. Although it faces tough competition from Tencent, it is increasingly having a big influence and imprint in both China and other global markets. It is particularly well-placed to attract marketing budgets from global brands looking to reach Chinese consumers, but it also has ambitions to take on Amazon globally, across e-commerce, payments, and cloud services.
Its success to-date has been driven by the growing Chinese middle class, and while there have been concerns voiced about a slowdown in the Chinese market, this is yet to be reflected in Alibaba’s retail performance. However the big opportunity will be expanding into new markets, likely first in neighbouring South East Asia, and undoubtedly starting to go head-to-head against Amazon as they expand further afield.
Despite shaky economic indicators, the major players in retail in the world’s two biggest economies are driving innovation to grow into new markets and compete against Amazon. The future of global retail is set to become even more disrupted.