Motley Fool Hidden Gems Investing - Amazon Vs. Walmart

Episode Date: June 25, 2023

Mary Long caught up with Jason Del Rey, author of “Winner Sells All: Amazon, Walmart, and the Battle for Our Wallets.” - How Amazon often beat Walmart’s low-price guarantee. - The incentives that slowed down Walmart’s e-commerce rollout.  - Why WalMart was hesitant about creating a loyalty program.  - Amazon and Walmart’s push into healthcare.  Companies discussed: AMZN, WMT Host: Mary Long Guest: Jason Del Rey Producer: Ricky Mulvey Engineers: Dan Boyd, Rick Engdahl Learn more about your ad choices. Visit megaphone.fm/adchoices

Stop wasting your nights on a mattress that doesn't get you. Experience the most comfortable mattress in the world. The Sleep Number Smart Bed. At the touch of a button, you can personalize your comfort. Choose firmer or softer. Adjust cooler to warmer. And right now, save up to $2,500 during our massive Labor Day event. Hurry into your local Sleep Number store today.

Because we have your number. While Walmart's leadership today, like Doug McMillan, would say it's very important to keep Sam's legacy alive, I think there was, to a lot of people, just a sense that Walmart, still in this era now, was worrying about Sam's methods and strategies and tactics too much for a world that Sam never lived in. I'm Mary Long, and that's Jason Del Rey, author of the new book, Winner Sells All, Amazon, Walmart, and the Battle for Our Wallets. I caught up with Del Rey to talk about why Walmart and Amazon even need to battle for your money, Amazon's foray into grocery, and the cultural forces that continue to drive each of these companies.

Your book is called Winner Sells All, but is the world really not wide enough for both Amazon and Walmart? Why does this battle have to have a winner? Listen, I think when I started writing the book three years ago, it really did seem like we were headed in a direction, at least in the online world, where Amazon just continued to gobble up market share and in large product categories might eventually be just about the last entity standing. The marketplace is ever expanding. Sellers feel like if they're selling online, they have to do business with Amazon. For a long time, I think there are people who care about the future of retail that were worried that, at least online,

that's the way we were heading. I think things have changed a bit over the last year or two, but we can get to that. You kind of hinted at this, but you've spent the past decade recording on these two companies. A lot has changed over that time. What's the overview of that? How has the rivalry between these two titans changed in the past 10 years? I think about a decade ago, So I started covering these companies in 2013, and back then, Walmart, they were pitching me on e-commerce stories. They were saying they were serious, but if you just looked at their business, the way it was headed, if you talked to folks in their headquarters of Bentonville, it was really not a main priority of theirs. And we fast forward until 2016 when Walmart made the acquisition of Jet.com.

A lot of people would say they really spent $3.3 billion just to acquire the founder of Jet.com, Mark Lurie. And then you see the metabolism pick up in their digital offerings. Not all successful, for sure. Um, but you finally could believe if you were paying attention to the company that they were seeing Amazon as a long-term existential threat and trying to do something about it. There were times when I was reading your book and it almost felt like a business espionage, not like story. That's great. Early on while Amazon is seen pretty clearly seen as this huge competitor in the e-commerce space and Walmart's kind of struggling to get there. There are all

these moments where Amazon is just consistently able to beat Walmart on their low price guarantee? How are they able to do that? Yeah. So for a long time, Amazon was tracking Walmart prices. They were doing it online and then they were trying to figure out ways to do it in store. Old school ways like sending someone in with a clipboard, that person got kicked out pretty quickly from Walmart stores. But in other ways, through pricing apps and the like, And, you know, Walmart at the time, they were more concerned about the pricing between their own stores and their own website than they were Amazon. And so, you know, I have quotes in the book from former Amazon executives saying, you know, they just left the door, the digital door wide open for us. Like we were tracking them.

They weren't matching us. And it really came down to a couple of things. One is, you know, I think this book is the classic case study of the innovators dilemma. I think Walmart so successful in physical retail still to this day. But really, we're looking at this less profitable or unprofitable channel and trying to create incentives that employees at their companies could live with that, you know, both kept the stores profitable but grew the online business. And it was just very messy and very disjointed for a very long period of time, which created this just giant gift to Amazon that always worried that if Walmart turned their stores into sort of same-day pickup and same-day delivery centers, Amazon might have been stopped in their tracks many, many years ago. Your book kind of makes the argument that corporate culture and the legacies of these two really prominent founder CEOs, Sam Walton and Jeff Bezos, they live on throughout the company, even when Jeff Bezos was obviously there while this rivalry is taking place, but even after those CEOs leave. So what impact did the personality of these two behemoths play in in in this battle and in shaping corporate culture?

So I'll start on the Wal-Mart side because this was the most surprising. You know, as I started reporting on reporting the book out, I talked to a bunch of folks who joined Wal-Mart just in the last four or five years. And many of them told me, Jason, we walked into meetings and we would hear someone say, what would Sam do? And of course, that's a reference to Sam Walton. And, you know, several of them told me, you know, I looked around and I thought it might be a joke, but like, no, seriously, like Sam Walton. Yes. Amazing entrepreneur, founder of this company. Sam Walton died in 1992 and like kind of why are we still concerned about what would Sam do yet we should think about his values but this is a totally different world and so you know I think

while Walmart's leadership today like Doug McMillan the CEO who I spoke to for the book would say it's very important to keep Sam's legacy alive I think there was there was to a lot of people just in, you know, a sense that Walmart still in this era now was, was worrying about Sam's methods and strategies and tactics too much for a world that, you know, Sam never lived in. Um, on the Amazon side, I think, you know, Jeff Bezos, um, as the founder of this company, you know, felt very strongly about a few things. One was, in fact, consumer obsession, which was a Sam Walton thing too. Two was bias for action. Again, funny enough, not coincident, you know, a Sam Walton thing. And so for all these years, we saw Amazon as the younger company actually living, you know,

living by these mantras, moving really quickly, organizing their company into small teams, these two pizza teams to move quickly while Walmart was kind of getting fat and bloated on their own success and thinking that they were keeping Sam's thinking alive. But Sam Walton, the entrepreneur, would have not loved the top-down decision-making. And I think that those are just some of the ways that we saw over time the founder's DNA affect the companies in both positive and negative ways. You quote a lot of Amazon executives throughout the book that kind to keep saying like, we were waiting around basically for Walmart to leverage their physical network of stores. Amazon expected that to like kind of be a deal breaker. And, but in Walmart's

quest to dive into e-commerce, there was actually a lot of tension between the walmart.com and e-commerce team and the department that handled physical stores. Can you speak a little bit about that tension and why it continued to persist? Sure. It's gone on for, you know, a decade or two now, all the way through the Mark Lurie era in the late 2010s. And there were a couple of reasons why. And one maybe obvious one is when people have incentives in business, their actions usually follow what's in the best interest of reaching those incentives or hitting those incentives. So physical retail at Walmart, a lot of those leaders, they're judged on profitability. E-commerce folks for a long time, not judged on profitability, at least under Mark

Lurie and the Jet.com folks. They were judged on growth. Inherently, there's going to be big issues there. Another thing is, for a long time, Walmart rightfully was concerned that online would cannibalize in-store sales. That absolutely happens, but they finally needed to have leaders who had the long-term view that this is okay in the short term. We want to keep people in the Walmart ecosystem. And if it's a store online, we'll need to figure out the profitability and how we can balance that. But if we're not providing what the customer wants where they want it, they will go find it somewhere else. So those were two key reasons why cannibalization and incentives. And just in the last four or five years, have we seen a shift that makes me think

that perhaps Walmart's on finally on a path where they recognize, you know, let's take advantage of our, you know, let's take advantage of our advantages and let's figure out how to balance the profitability, but we need, need, need to meet customers where they want to be. Let's talk a little bit about each company's loyalty programs and the way that they operate in their e-commerce segments. What are the origin stories of Prime and Walmart Plus? Sure. So Prime started way back in 2005, really took some years to gain momentum. A big addition was offering video service and that addition, even in the early days where that addition of video to Prime, really the content was not very good, but Bezos had seen what Netflix did when

they switched from DVDs to streaming. And, you know, if you're not raising the price on someone, are they going to really complain if the content isn't that great initially, or are they going to be thankful for what they see as like added value? So, uh, and, and Prime, you know, there were some, You know, some people would say that Bezos looked at Costco and saw the loyalty they built. So that that was another factor as well. And then over time, you know, you don't you don't have Prime and the speedy delivery without the massive fulfillment center network. And you don't have Prime and the speedy delivery without the massive fulfillment center network that Amazon has built. They actually overbuilt it during the pandemic, but nonetheless, that allowed for it.

On the Walmart side, Walmart Plus is only a couple of years old. They had talked about a membership program for a long time. I have a memo in my book that was passed around and circulated by a strategy team a couple of years before Walmart Plus saw the light of day. They struggled for a long time with the idea that we believe in everyday low price. And if we sort of cordon off part of our business or part of our attention to people paying more, does that somehow go against the everyday low price philosophy, Sam's philosophy? And at the end of the day, they finally made the decision, like, we're just getting our butts beaten in with this Prime thing. Prime customers spend so much more.

a lot of Walmart's best customers were becoming prime customers. And they finally, I believe in 2020, stuck their toes in the water and launched Walmart Plus with fast delivery of groceries and general merchandise, some discounts at gas stations. And over time, they've added a little more around prescription drugs. They've added some around discounts to entertainment video streaming services. And I think they really are trying to make this maybe not an all-out competitor, but something that becomes a competitive advantage for them. I think a huge theme of your book is Walmart's moving along on this path, and then Amazon makes an announcement, and Walmart has to play catch-up to meet them there. And a great example of this was the 2017 acquisition of Whole

Foods. And there's a story about Walmart having its own acquisition and they have plans to make the announcement of this acquisition on the same date that actually Amazon announces this Whole Foods news. Can you share that story with us? I played a little role in this story because so on the Walmart side, they acquired a sort of digital, what people in the industry would call a digital native brand. It was a menswear brand called Bonobos and that started online and then opened up showrooms too. So you can go try on stuff and then have it delivered straight to your home. And so in April of that year, I broke a story that Walmart was in advanced talks to buy Bonobos. And yes, it eventually, they didn't talk to me at the time, but a month or two later on,

I believe the date was June 16th. It was a Friday. They announced through an article in the New York Times that they've made this, you know, acquisition and it speaks to a new day at Walmart. And in some ways it did. But that same morning, and I forgot the exact timing, you know, the business world just and really just the whole news cycle blows up when Amazon announces the acquisition of Whole Foods for more than $13 billion. And I talked to folks at Walmart who were just like, man, I think one of the quotes was like, you know, it just showed like we were playing checkers, they were playing chess. Another one, another executive, it was just like my heart sank. You know, there were some like Mark Lurie himself who said, listen, if they had bought

Kroger, a mainstream, real mainstream grocer that competes head on with us, I would have been like, we're screwed. But, you know, instead I saw there wasn't a ton of overlap and he instead tried to use the news cycle to create internal urgency just about expanding faster in the grocery space. But yeah, that was definitely, you know, that was just, you know, a gift to journalists who, you know, are covering the narrative of Walmart seemingly being one step behind Amazon, you know, many times over the course of their histories. But about the grocery acquisition, like you and Mark Laurie make a great point. And even today, Walmart still has over 25% of U.S. market share when it comes to grocery and Whole Foods has less

than two. So huge acquisition and an indicator of Amazon's like grand vision. But why is the grocery industry so coveted in the first place? Like, yes, it's a necessity, but you even mentioned in the book, margins are pretty notoriously slim. And so why do both companies so badly want a piece of that? Yeah. So Walmart didn't start in grocery, but obviously ended up adding it in decades ago and they've done incredibly well in the space. Amazon, you go back, I think I have a memo in the book from some of their early years. And there was an executive named Doug Harrington, who today is actually the CEO of Amazon's entire retail business, essentially their core consumer business. And he basically said, it comes down to ambition. Amazon had

ambition that they could be the everything retailer. And if you want to be the everything retailer and have customers coming back the most frequently, you need to give them a service that makes it possible to buy the stuff that people buy the most frequently. And that's grocery and CPG consumer packaged goods. And so it was a long-term vision that if we aspire to be as big and as impactful as these big retailers that were much younger than Walmart chief among them, we need to do something in this space. And so we see a variety of attempts over the years, Amazon Fresh Delivery, you know, for many years, different pricing models, you know, different geographies, frankly, different quality, you know, different levels of quality of their

food over the years. And then to me, it felt like the Whole Foods deal felt like a bit of a white flag that the space is really hard and we need some help. I'll say how many years later are we now? Five or six years after that deal. I don't think it's been as successful as they hoped it would be. I think they're still they're obviously trying to figure out through the Amazon Fresh grocery store chain. Can we be a player in mainstream grocery? And if so, what is our differentiation. And there's no other way to say it. They've struggled a ton in that space. There's a lot of talk, especially by Mark Lurie in this book, about this idea of conversational commerce and ordering something by talking to someone, some assistant. And it's different,

but reminds me a lot of Amazon's Alexa and Amazon's whole foray into our homes. Why does Amazon and Walmart, for that matter, why do they want to get inside of our homes? Kind of creepy, but they do. And I will answer that question, but I just want to share a quick aside, an anecdote that reminded me of, you were just talking about the back and forth between the companies. And I think it's easy for regular people, whether consumers or employees, to recognize that some decisions made by very important people controlling very powerful companies are really about like ego or like insecurity. And so I have one funny anecdote in the book where Walmart CEO finds out that Amazon's launching this delivery inside your

home program called Amazon Key. At least that's what it was called. And Walmart's e-commerce team hears this and the directive is we need to spin up some type of pilot test in this space that they were not working on previously before Amazon announces this so we could just beat them and control the narrative. And they ended up doing that. And anyway, it was related. And I just thought, you know, just spoke a lot to the fact that individual people are making really important decisions that impact so many of us. And they're not always for, you know, the best reasons or just business reasons or consumer centric reasons. So to your question about in the why in the home, I think Amazon thought they failed on the phone, the fire phone way back in the day.

A lot of people just forget about that because Alexis was sort of a blockbuster hit that shocked a lot of people, I think even inside Amazon. And I think they thought that we may move to a world where the next sort of technology platform, the next computing platform that people interacted with every day would be speaking voice recognition and not computers. And so there was this race to control that I think now on the Walmart side and what you referenced with Mark Lurie, I think he's looking at all the advantages that Amazon has over Walmart, really struggled to see where Walmart's advantage would be, maybe not on price, maybe not on convenience, like what could it be? And so he and some people cooked up this idea that it could be personalizing the shopping experience for every individual customer.

So, as you referenced earlier, you don't have to wade through the bizarre of ridiculous amount of results on Amazon or Walmart's webpages. And if you could speak what you want or text what you want, and the technology and the humans, collaborators, could do it well enough to give you what you want, maybe long-term, there's an advantage that Walmart can harness. We just haven't seen it manifest itself in any meaningful way yet. There are so many different sectors that both of these companies are already in that they want to be in. And I could pick your brain about all of them, but I'll just summarize. There's a chapter in your book called Walmart 2040. So what is the 2040 vision for Walmart, but also for Amazon? Yeah, so the Walmart 2040, you know, and that phrase comes from a memo that Mark Lurie and

a colleague wrote right before Mark Lurie left Walmart in, I'm blanking on the year now, all these years, I think either 2022 or 2021. And that's high pandemic when years blend together. And this whole I mean, this whole project I worked on throughout throughout the pandemic. So, yeah, I feel like many, many years lost in my life. And unfortunately, my family used to have a lot of making up to do to my two kids and my wife. But back to the Walmart 2040. So part of part of that vision was was actually just what I laid out that Walmart is going to have a hard time beating Amazon price, convenience, selection. We're going to have to just get really good at

personalizing the experience for each customer. And maybe, maybe just that, you know, maybe that'll create this advantage. And so that, you know, a lot of that memo was about this conversational commerce idea. On the Amazon side and Walmart as well, though, and I have a whole chapter on this, which I was really excited to dig into, was their motivations in healthcare. And really, I think a lot of the books about core retail categories, but I think if we look out 10, 20 years, there's the potential that the greatest impact these companies have, at least in the US, on the greatest amount of people ends up coming long-term through their healthcare services. I'm talking pharmacies, of course, Walmart has had for years, Amazon now dabbling in.

But really, physical medical offices, Amazon had a $4 billion acquisition in that space. Walmart's expanding their own Walmart health clinics, and also virtual care. And they are both really serious about getting into this space, thinking the incumbents really just have this disregard for consumers. the pricing is pretty awful in this country and they're they're trying their best to to make in roads here very unwelcoming industry to newcomers but they have a lot of money to spend and that's the space really long term that i have my eye on uh because i i just think there's a you know there's going to be a lot of big impacts to come in that space

as always people on the program may have interests in the stocks they talk about and the motley fool may have formal recommendations for or against so don't buy or sell stocks based solely on what you hear i'm mary long thanks for listening we'll see you tomorrow Thank you.