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--:-- Host (Ryan Knutson): Welcome to The Journal, our show about money, business, and power. I'm Kate Leinbaugh. It's Tuesday, March 18th.
--:-- Kate Leinbaugh: Today, we're talking about the battle for the title of America's largest retailer. Walmart has held that crown for over three decades, but Amazon is closing in. Joining me is our colleague Sarah Nassauer. Sarah, thanks for being here.
--:-- Sarah Nassauer: Thanks for having me, Kate.
--:-- Kate Leinbaugh: So, Sarah, what's at stake here? Walmart and Amazon are fighting for the dollars of the American consumer.
--:-- Sarah Nassauer: That's right, Kate. And I think it's a Goliath versus Goliath story, where everyone else suffers in some way. Walmart and Amazon are the two Goliaths in this story, and they're fighting for market share.
--:-- Kate Leinbaugh: That's a great way to put it. And you say Amazon could take Walmart's crown this year. Is Walmart putting up a fight to keep its crown?
--:-- Sarah Nassauer: Yeah, they are fighting for the king of retail title. I think there's been a shift within Walmart from defining themselves as the country's largest retailer by revenue to the country's most convenient or most helpful retailer.
--:-- Kate Leinbaugh: That's interesting. And what does that mean for them, do you think?
--:-- Sarah Nassauer: I think it's a big deal, culturally, internally, and psychologically. It's bragging rights, and corporate America, being number one kind of matters.
--:-- Kate Leinbaugh: That's right. And I think there's something about humans that likes to think of themselves in these types of competitions.
--:-- [Music transitions to a brief segment]
--:-- Host (Ryan Knutson): Welcome back to The Journal. Today, we're talking about the battle for the title of America's largest retailer. Walmart has held that crown for over three decades, but Amazon is closing in. Joining me is our colleague Sarah Nassauer.
--:-- Sarah Nassauer: Thanks for having me back, Ryan.
--:-- Ryan Knutson: So, Sarah, when you started covering Walmart 10 years ago, what were you told you'd be covering?
--:-- Sarah Nassauer: I remember one of the editors who interviewed me to take that job described the job to me in terms of basically covering the slow decline of the king of retail.
--:-- Ryan Knutson: That's right. To me, it's really interesting to have watched Walmart kind of get to this point, and that they've actually been able to pull it off. They've actually been able to figure out a way to deliver lots of the things that we kind of want in a daily, weekly way really, really fast.
--:-- Sarah Nassauer: And I think the last two years is when they made a big leap to get there.
--:-- Ryan Knutson: How did Walmart become the king of retail?
--:-- Sarah Nassauer: Walmart became the king of retail through probably ways that we think about as traditional retail, right? Building lots of stores, selling things at a lower price generally than lots of competitors, having a really broad selection.
--:-- Kate Leinbaugh: [Re-enters the conversation]
--:-- Kate Leinbaugh: That's right. And it all began in 1962 in Rogers, Arkansas, with Walmart founder Sam Walton. His mission was to have the lowest prices anytime, anywhere.
--:-- Sarah Nassauer: That's right. And by 1990, Walmart was the largest retailer in the U.S.
--:-- Kate Leinbaugh: But then the Internet happened, and Walmart got a new upstart competitor, which would change American shopping habits. Amazon, founded by Jeff Bezos, envisioned a place where customers could come to find and discover anything and everything they might want to buy online.
--:-- Sarah Nassauer: And through the 2000s, Amazon built out a network of fulfillment centers, offered two-day shipping with Amazon Prime, and expanded its offerings by allowing third-party sellers on its platform.
--:-- Kate Leinbaugh: The growing Amazon was a threat to Walmart. And in 2014, when Walmart named a new CEO, Doug McMillan, it was one of the many things on his plate.
--:-- Sarah Nassauer: His mission was to grow Walmart's online operation. And one part of the company caught his eye. An experiment happening in Colorado of an online pickup and delivery grocery service.
--:-- Kate Leinbaugh: Walmart really leaned into the pickup side of that. This idea that you buy online and you pick up in a store parking lot. That was in part because that's a much more profitable way to sell online than delivery.
--:-- Sarah Nassauer: And this experiment worked. Within a few years, Walmart started offering online grocery pickup in a thousand stores across the country.
--:-- Kate Leinbaugh: But they also knew that shoppers want the most convenient thing. And the most convenient thing is bring it to my house.
--:-- Sarah Nassauer: We're selling these groceries at the same price online as you get in our stores. That's appealing to people. We have something there. Let's build on that.
--:-- Kate Leinbaugh: To achieve this dream of same-day grocery delivery, in 2018, Walmart launched an app with its own network of freelance drivers. They called it Spark.
--:-- Sarah Nassauer: Spark was working and more and more of Walmart's orders were delivered via the app. But the app had limitations, namely in how it mapped out delivery areas for drivers.
--:-- Kate Leinbaugh: Spark started out using zip codes, but Walmart wanted it to be more precise. They worked on the mapping technology that they used to determine which areas they can route deliveries to.
--:-- Sarah Nassauer: And that technology became more complex, and they were able to integrate census data. And will food spoil? And will the driver want to drive that far? Sort of more factors and use, instead of zip codes, kind of a pixelated map that allowed them to just sort of get more granular and deliver to more places.
--:-- Kate Leinbaugh: Spark is now responsible for over 80 percent of Walmart's deliveries. And its stores, once considered the company's Achilles heel, have now become an asset.
--:-- Sarah Nassauer: Today, Walmart is able to do same-day delivery to 93% of American households.
--:-- Kate Leinbaugh: Why is Amazon struggling to compete in fast grocery delivery?
--:-- Sarah Nassauer: Because food is tough. You know, fresh food is just tough to deal with. It's very low margin. And they don't have grocery stores that have the same level of coverage.
--:-- Kate Leinbaugh: So they have to build a fresh network, which is what they are doing rapidly right now, that is delivery based.
--:-- Sarah Nassauer: And they have had so many different models of trying to figure out how to both sell food that people want to eat and are willing to pay the price for and then get it to people fast because they are a delivery company that it just it been trickier for them.
--:-- Kate Leinbaugh: They don't have that infrastructure. That is not where they come from, whereas that is where Walmart and like a traditional grocer, that's what they do.
--:-- Sarah Nassauer: But Amazon does have a national grocery retailer. It has Whole Foods.
--:-- Kate Leinbaugh: Yeah. I mean, Whole Foods is more expensive overall. And also there's only a few hundred Whole Foods stores in the country, and they tend to be clustered around urban areas.
--:-- Sarah Nassauer: There's 4,600 Walmart super centers, and they're everywhere.
--:-- Kate Leinbaugh: Unlike Walmart, Whole Foods has a more limited grocery selection. As a natural and organic supermarket, it doesn't sell brands like Cheerios or Doritos.
--:-- Sarah Nassauer: That presents the challenge because a lot of people, when they go grocery shopping, they might want to buy organic milk, but they also might want to buy Coke.
--:-- Kate Leinbaugh: And they don't want to go two places to do that, right? And right now you can do that at Walmart, but you can't do it at Whole Foods.
--:-- Sarah Nassauer: So one thing that Amazon is experimenting with is this idea of an Amazon, they call it Amazon Grocery.
--:-- Kate Leinbaugh: It's like a little store that's right next to the Whole Foods. And the idea is then you sort of have one location you're going to get all your grocery needs met.
--:-- Sarah Nassauer: After a decade-long push, Walmart has a 9% share of U.S. e-commerce sales. Amazon has 41%.
--:-- Kate Leinbaugh: And Walmart's online business as a standalone operation isn't profitable.
--:-- Sarah Nassauer: It's increasing sales and they're grabbing market share. And they have to because Amazon is doing the same thing.
--:-- Kate Leinbaugh: Yeah, they might still lose their king of retail crown in the annual revenue sense. But they might also see market share slip and sort of be chipped away at in a way that I think a lot of people thought would happen 10 years ago.
--:-- Sarah Nassauer: And in this war between our two Goliaths, who's caught in the middle?
--:-- Kate Leinbaugh: In competing against each other, they've become so incredibly powerful that there are lots of other losers, right?
--:-- Sarah Nassauer: And when Amazon and Walmart grow their revenue by X percent, it's so many more billions of dollars than when a smaller company does it that they're still taking market share from others.
--:-- Kate Leinbaugh: So if you were to place a bet on who's going to win in the clash of the titans?
--:-- Sarah Nassauer: I feel like Walmart is so formidable as everyone who has sold to them or competed with them knows.
--:-- Kate Leinbaugh: I cannot imagine a future where they're not a big player and a huge factor in what retail looks like in America.
--:-- Sarah Nassauer: As someone who has followed the company for a very long time, fundamentally, I think one of the biggest issues is just the internal tendency to move slowly because it's such a big place.
--:-- Kate Leinbaugh: But obviously Amazon is a company that is built around technology and e-commerce and AI and all these things that seem like they're going to be important in our future.
--:-- Sarah Nassauer: And Walmart has a totally different history and like cultural corporate muscle.
--:-- Kate Leinbaugh: Before we go, we're interested in hearing from you. Do you have any questions about what's happening with the Trump administration?
--:-- Sarah Nassauer: Email us and let us know. Please send us a voice note to thejournal at wsj.com.
--:-- Kate Leinbaugh: That's thejournal at wsj.com. That's all for today, Tuesday, March 18th. The Journal is a co-production of Spotify and The Wall Street Journal.
--:-- [Music transitions to a brief segment]
--:-- Host (Ryan Knutson): Thanks for listening. See you tomorrow.
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