In the autobiography, “Sam Walton: Made in America”, Walmart’s fabled founder writes:
“There is only one boss. The customer. And he can fire everybody in the company from the chairman on down, simply by spending his money somewhere else.”
Little did he know that after building one of the most imposing businesses (and fortunes) in history, just decades later his “boss” would be contemplating the possibility of mass redundancies due to a plucky, Seattle-based tech company named after a river.
In part one of this two-part series, I drew comparisons between the Walmart/Amazon battle for retail supremacy, and the Greek tale of the Titanomachy. As a refresher, the Titanomachy was a decades-long war between the powerful, older deities – the Titans – and their offspring challengers, the Olympians, in a battle for control of the universe. A worthy prize, indeed. I also pointed out that while this battle for the retail universe continues to rage on, below the surface, both companies are making moves in the FinTech arena, which are both impressive and potentially landscape-shifting:
“…there’s a layer to this battle which has gone under the radar. For years, behind the scenes, both companies have been quietly building up arsenals of FinTech firepower…. Why does this matter? Well, as we’ve discussed , banks are under fire from thousands of start-ups picking off parts of their business models. While a non-trivial concern, the reality is that start-ups do not have the resources or scale necessary to present a truly existential threat to banks. Walmart and Amazon, however, do…”
In this piece, we’ll uncover the FinTech secrets of this titan.
For all the headlines about Amazon’s imposing scale, Walmart’s size in the realm of the tactile is enough to give Amazon an inferiority complex. At the time of writing:
Walmart’s heft was built on Sam Walton’s key insights into the retail sector, namely: if he focused on offering the lowest prices possible, he could make up for it with scale and volume (which would permit economies of scale over time), giving him carte blanche to model the supply sector and retail landscape after his own designs.
That thought process fueled a business model which has enabled Walmart to offer very low prices since the opening of his first five-and-dime store in 1950:
This business model remained sovereign, until the advent of the internet and e-commerce, which has stripped storefront overhead costs out of the equation and enabled the likes of Amazon to start chipping away at the supply-side economy of scale advantages.
Walmart remains the only retailer with the size and financial clout to actively fight back against Amazon’s retail rout. The company’s counter-punches have been aggressive and frequent. They’ve had to be because in recent years Amazon has waded into Walmart waters to target less-affluent households.
Roughly 60% of the middle to high-end market have Prime memberships in the U.S. For Amazon to maintain the inexorable growth of Prime, a move down the income curve provides the only viable avenue. So far, it has done so by making cash payments possible and proffering a discounted Prime for government assistance recipients.
According to recent data from Kantar Retail’s ShopperScape, the average Walmart shopper is a 51-year-old female with an annual household income of $56,482.
By comparison, Amazon’s average customer is just 37 years old and the average annual household income of Prime members is a hefty $90,000. Because the “Everyday Low Prices” philosophy was baked into the very DNA of the company, encroachment by Amazon into this territory poses a vast, existential risk to Walmart.
Walmart’s aforementioned counter-punches to ensure prices remain lower than Amazon’s are working: LendEdu’s data has found that:
“the total cart balance of our 50 identical items would be 10.37 percent more expensive if purchased from Amazon as compared to Walmart. Furthermore, Amazon was found to be more expensive in four of the five categories examined, with the widest margin occurring in the “Home Goods” segment.”
As Walmart rushes to become Amazon before Amazon can become Walmart, the impressive way Walmart has addressed the problem reminds me of a quote from Jim Collins in his bestseller “Good to Great”:
“The good-to-great companies displayed two distinctive forms of disciplined thought. The first, and the topic of this chapter, is that they infused the entire process with the brutal facts of reality. The second, which we will discuss in the next chapter, is that they developed a simple, yet deeply insightful, frame of reference for all decisions.”
While just my conjecture as an outsider looking in, it feels to me that Walmart has done both:
These two forms of “disciplined thought” have also driven Walmart’s FinTech strategy…
“A coalition of consumer groups, unions, independent banks, credit unions, and realtors managed a legislative feat in California last month when they pushed through an 11th hour bill to block Walmart’s attempt to acquire a small bank.
Walmart filed an application with state regulators in April to buy Franklin Bank of California, an industrial bank with $2.5 million in assets and three employees in Orange County. The new law prohibits non-financial firms from buying state-chartered banks.
Opponents of the move argued that it could lead to dangerous conflicts of interest. Not only might Walmart use its size and power to muscle out smaller banks and credit unions, it could also deny loans to retail competitors and their suppliers. Such distortions would undermine the soundness of the banking sector and lead to ‘a dangerous aggregation of economic power’.”Walmart protested the “unfair targeting” based on its size, and since then has made few sustained attempts at similar approaches to enter banking. While the company is no longer going after banks (directly), it still realizes that by enmeshing itself into the lives of its low-affluence consumers via providing vital financial services, it can widen and deepen the moat they have around them. This has driven the formulation of FinTech plays which are working phenomenally for Walmart (so far)
“There are millions of people sending money around the world to help loved ones with everyday needs or in times of emergency. Walmart2World, powered by MoneyGram helps customers get money to family and friends across the world in minutes, and the new low fees mean more of their hard-earned cash goes where it’s needed most.”The Walmart MoneyCenters and Customer Service desks themselves have evolved well beyond the money transfer business. Now, customers can:
“Traditional approaches to workforce well-being often focus solely on physical health, but we know from listening to our associates that financial well-being is just as important. We’re investing to give our people financial tools that help provide more stability in their lives, which we believe will empower them to be all they can be when they are at work serving our customers.”This new tool will help associates with planning ahead for bills and savings goals, plus how much they have leftover for spending. Walmart has offered to cover the entire cost of financial management tech for both hourly and salaried associates and will ensure associates can use Instapay up to eight times per year for free (costs will be subsidized if associates need to use Instapay more than eight times in a year). The financial management and Instapay features will be available to all Walmart, Sam’s Club, and Walmart e-Commerce associates.
Since 1950, Walmart has understood the needs of their consumer at a visceral level.
The move into money services can be compared to the bread at a restaurant – it’s negligible revenue for them. The broader goal is defensive action against the approach of low-priced consumer goods competitors by building up an arsenal of products on the consumer side; every Walmart customer globally is an Amazon customer that could be taken away. Walmart’s desire, much like Amazon’s, is to become the nucleus of a person’s life in all aspects – groceries, personal and home goods, and now financial services.
While competing against the Amazon flywheel has been an uphill battle for Walmart, I honestly don’t think it’s beyond the realms of possibility to see Walmart “win” against (or at least not lose to) Amazon – it’s not easy to belt North America with physical locations, after all.
Original Source: LinkedIn
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