Amazon And Walmart’s Battle For Consumer Retail Spend
In some ways, the second quarter was like nothing the world has ever seen, as the pandemic cut through the daily lives of Americans from April through June, and is still a factor in many parts of the country. But in other ways, it was business as usual, as the two biggest retailers in the world – Walmart and Amazon – posted stellar earnings numbers and competed in more muted ways for the U.S. consumer’s whole paycheck.
The latest installment of the PYMNTS Whole Paycheck Tracker is an in-depth look at how the pandemic affected the two companies as they continued to position themselves as a fixture in overall consumer spend and overall retail spend. By the numbers, both Walmart and Amazon exceeded all expectations in terms of earnings, but they operated through the quarter on very different levels in other areas. For both of them, Q2 turned out to be far bigger than last year’s holiday selling season, and they used the quarter to get ready for a critical 2020 holiday season.
The PYMNTS tracker for Q2 found that although Walmart had a stellar quarter in terms of overall earnings, Amazon outperformed it in some key categories. Overall, gross sales in the U.S. via Amazon have increased from $86 billion in 2014 to $339 billion in 2019. Only about $4 billion of Amazon’s Q2 revenue took place outside of the Amazon.com domain, meaning Whole Foods, Amazon Fresh and Amazon Go. It’s interesting that the cumulative annual revenue growth rate for the Seattle-based crew (since 2014) is 31.5 percent for total sales and 30.1 percent for eCommerce. That difference comes from the relatively nascent nature of its offline business as well as stiffer competition from other eCommerce players.
When it comes to Amazon’s share of consumer spending, things get a bit more complex. The eCommerce giant accounted for 3.2 percent of total consumer spending in Q2 (spanning all categories, including retail) and 9 percent of total retail spending. Check that against Q1 (7.7 percent of total retail) and the results are significant, considering Amazon’s revenue base. Now compare that to Q2 2019, and the 6.4 percent number shows that Amazon has gained 2.6 percentage points in a year.
Considering the pandemic and its hybrid online-offline model, Walmart’s results were more subtly impressive. Its gross sales in the U.S. (online and physical) jumped about $7 billion from Q1 2020 to Q2 – from $103.9 billion to $110.5 billion. However, that’s roughly similar to 2019, when it jumped from $95.1 billion (Q1) to $101.8 billion. That correlates to the relatively flat in-store comps the company reported for Q2 this year, which was impressive when considering the pandemic. Digital sales jumped from $9.3 billion in Q1 to $11.2 billion in Q2, almost double the $5.7 billion in Q2 2019. That $11.2 billion for eCommerce represented 10.2 percent of total company sales, more than double the 4.7 percent reported in 2018.
When it comes to consumer spending, Walmart accounts for 3.4 percent overall and 10.2 percent for retail. That’s up from 9.6 percent in Q1 2020, but roughly even with 2016. Bottom line: In 2019, Amazon accounted for 6.8 percent of total retail spend, while Walmart grabbed 8.9 percent.
So far, 2020 has been better for Amazon. For Q2, Amazon took 9 percent of consumer retail spend and Walmart increased to 10.2 percent. Amazon has been closing the gap with Walmart over the past five years, and trends suggest they will continue to reduce the gap in the next few years as the battle for the whole paycheck pulls to about even.
In terms of individual categories, Walmart underachieved in several key areas. The pandemic was notable for its spikes in exercise equipment and sporting goods, as reflected in quarterly earnings from Peloton, Dick’s Sporting Goods, Hibbett Sports, Target and other retailers. But Walmart sales in the category showed minimal bounce, from $3.5 billion in Q1 2020 to $3.7 billion in Q2. By contrast, Amazon added almost $2 billion in sporting goods sales, going from $16.5 billion in Q1 to $19.4 billion in Q2.
The two retail powers are also parting ways on two other important categories: electronics and appliances. Amazon rose from 22.6 percent of total spend in Q1 to 24.4 percent in Q2, while Walmart dropped from 6.2 percent in Q1 to 6 percent in Q2.
Walmart’s biggest percentage sales growth outside of grocery came in apparel. It added more than $500 million to its quarterly tally in this category, jumping from $9 to $9.5 billion and taking 10.5 percent of spend. But Amazon still outperformed in this category on a total spend basis, going from $13.8 billion in Q1 to $16.2 billion in Q2 for 17.8 percent of total consumer spend. With Amazon holding a summer apparel sale in June and pushing to enter the high-fashion category, Walmart will need a fairly dramatic move to shore up its apparel share of consumer spend.
The two retail giants are gearing up for a new battleground: grocery. As Amazon and Walmart lean in on the biggest category relatively late in the game, the battle for 2021 will expand beyond the two whole paycheck contestants and include aggressive moves from Target, Kroger and other supermarkets as they defend their turf.
Walmart and Amazon have put so much emphasis on grocery – spanning online, offline and home delivery – that the current snapshot will change dramatically. Still, that snapshot shows a complicated base from which they both work.
Amazon is more convoluted due to its four-pronged approach to the category: Amazon.com, Whole Foods, Amazon Fresh and Amazon Go. It was not a completely successful formula in Q2. Amazon’s physical store revenue (mainly Whole Foods) dropped almost 13 percent in Q2 2020 compared to Q2 2019. Compared to Q1 2020, the drop was even higher at 18.7 percent.
Walmart, on the other hand, has put some big grocery numbers on the board, which should only increase as Walmart+ is rolled out and its partnership with Instacart is deployed. The retailer’s food and beverage category went from $58.7 billion in Q1 2020 to $62 billion in Q2. Compare that to Q2 2019 and the numbers are even more impressive, jumping from $56.7 billion. That’s a $5 billion difference in the biggest consumer retail category.