Fears that India’s existing retail structure comprising the kirana shops as well as large Indian companies have of being shaken up by foreign direct investment (FDI) in retail, are perhaps irrelevant. Fear instead, the changing dynamics of the global retail business. As Wal-Mart takes small but sure strides towards becoming Walmart.com, and Amazon chooses to take a few leaves out of the retail behemoth’s book, it is clear that the global retail business is evolving into a hybrid and for sure, a more customer-focused entity. For success, a retailer in India will need to combine a bricks-and-mortar strategy with a digital one. Indeed, there is so much in common between the two offline and online leaders of global retail that the much-trumpeted rivalry should be of interest only to investors. Barely one-sixth of Wal-Mart’s size, Amazon isn’t a serious rival for the former; it is an e-commerce giant, but more than that it is a major disrupter of the retail industry.
Wal-Mart is a $471 billion megacorp with vastly healthier margins than those of Amazon. Also, it makes real profits as opposed to Amazon’s iffy profits. And yet Amazon’s price earnings projections are far higher than those of Wal-Mart. Despite having had plenty of opportunities to raise its margins, Amazon has routinely chosen to reward customers with subsidized shipping and higher discounts. True, Wal-Mart’s margins are higher, but growth is much lower so Amazon is paying in margins to grow. It’s a straightforward play and one that justifies the absurd stock price.
For long Wal-Mart has suffered the collateral damage from the Amazon model of shopping. Shoppers go to Wal-Mart, scan the bar code and then buy the product online, quite often from Amazon at lower prices. But Wal-Mart isn’t a Sears, a J.C. Penney or a Kmart, all erstwhile giants that have fallen by the wayside even as retailing changed track. Wal-Mart isn’t one of them because the company has a tradition of snagging the best technology.
As far back as 1987 it built what was at the time the largest private satellite communications network in the world. In the last few years the “Lighthouse of the Ozarks” has bought a number of tech firms including those that specialize in mobile applications. It also acquired a major stake in Chinese e-commerce retailer Yihaodian, despite building a massive business in the world’s fastest growing retail market. In April 2011, Wal-Mart bought Kosmix founded by IITians Venky Harinarayan and Anand Rajaraman (who have worked in the past with Amazon) and set its artificial intelligence tools to mining shopper behaviour. So its e-commerce sales at just about $10 billion are dwarfed by Amazon’s, but they have grown nearly 100% over the last one year.
But if Wal-Mart is chasing e-commerce success, Amazon in turn, is also ready to test a small, boutique store in Seattle. If that experiment works out it could well build a national chain. With Wal-Mart boosting its online shopping experience, this means the two rivals could soon coalesce in skills and objectives. Both firms are now making inroads into one of the last bastions of traditional retailing—instant fulfilment—through their same day delivery option.
Wal-Mart will not go away. Nor for that matter, despite its non-existent profits, will Amazon. What they will do is to redefine the way retailers address the needs of shoppers. That redefinition is a threat to traditional one-dimensional retailers in India as well as anywhere in the world.