What Everyone Gets Wrong About Amazon v. Wal-Mart

Everyone’s calling it a game-changer.

amazon acquisition

Amazon.com (NASDAQ: AMZN) buys Whole Foods (NASDAQ: WFM) and the retailing world is turned upside down. Amazon is now a legitimate threat. It challenges Wal-Mart Stores (NYSE: WMT) on Wal-Mart’s turf.

We’re told Wal-Mart is in trouble.

“Amazon will reduce prices and change the assortment of products carried in Whole Foods stores to attract a larger customer base,” foresees one former Amazon executive, as told to Reuters. “Kroger (NYSE: KR) and Wal-Mart will be impacted as their customers will defect to Amazon.”

Much of the commentary I’ve read corroborates the former Amazon executive’s assertions. Now that Amazon has moved into bricks-and-mortar retailing, it’s inevitable it will dominate the space.

Amazon Acquisition: Unstoppable?

One Fast Company writer was so aghast at the prospect of endless Amazon domination that he demands the federal government take charge. He demands an immediate breakup before Amazon accelerates into an unstoppable monopoly.

Our Fast Company writer leans on Amazon’s dominance in online sales and internet clouds services as proof of impending monopoly. Amazon accounts for 43% of online sales and 40% of internet cloud services. These percentages far outdistance its rivals. It’s inevitable Amazon will dominate bricks-and-mortar retailing.

There’s a bit too much rote extrapolation for my liking.

To grow to account for 40% of a market is a far easier task than to grow to account for 80% of it. To assume that any company can dominate a market at will compounds the foolishness. We have precedents.

Standard Oil did grow to 80%, and beyond. Standard Oil once controlled 88% of oil production and refining. Standard Oil dominated the oil industry like no company dominated its industry. Amazon isn’t even close.

But Standard Oil was never a monopoly (the single supplier). Standard Oil had always been pressured by competition. The 88% was an apex that Standard Oil could never hope to hold.

When the Justice Department overreached its boundaries to break up Standard Oil in 1911, Standard Oil was plenty pressured. Upstarts Gulf, Phillips 66, Texaco, and Shell had already eroded Standard Oil’s market share down to 64%.

Too much of the Whole Foods/Amazon hype assumes Amazon management is omniscient. It can do everything, and it can succeed at everything. This is fallacy writ large. The fact is the more Amazon wanders from its core competency, the more it risks failure. It wanders with the Whole Foods acquisition.

And let’s not underestimate Wal-Mart. The company continually proves its chops as a masterly retailer  ̶  its core competency. Who’s to say that Wal-Mart can’t extend its retailing acumen into cyberspace? Not I.

Wal-Mart U.S. online sales rose 63% in the first fiscal quarter. Growth was driven by a slew of new initiatives, including the $3 billion Jet.com purchase. Yes, Wal-Mart starts from a far smaller base than Amazon, but it is growing online sales faster than Amazon.

If we extend our view to the panoramic, we find that the underlying context of the Amazon v. Wal-Mart is simply wrong.

Amazon and Wal-Mart offer different shopping experiences, and it’s possible to enjoy both. For one need, you may find that Amazon offers the “best” shopping experience. For another need, you may find that Wal-Mart offers the “best” shopping experience. No one mandates that you choose one over the other and then stick with the choice for eternity.

Amazon Acquisition Won’t Close Revenue Gap

Wal-Mart generates $500 billion in annual revenue. That’s a lot of “best” shopping experiences for a lot shoppers. Amazon isn’t even close. Whole Foods won’t close the gap anytime soon, if ever.

I’ll acknowledge that the Amazon acquisition of Whole Foods might be a game-changer. I won’t assume the change favors Amazon. That’s exactly what a lot of commentators and investors assume.

Published by Wyatt Investment Research at