Traditional retail in the United States, the kind you find atthe malls, and urban department stores, is in trouble. The verylarge retailers such as Walmart, Macys, Kohls, Sears, and Nordstromall have reported about 1% to 2% sales growth since the recessionof 2008. In 2016, Target, Macys, Sears, JCPenny, and others areclosing hundreds of stores. Since 2000, consumers have beenshifting away from traditional retail goods like apparel andelectronics(the mainstays of retail stores), and buying moreservices like vacations, exercise, dining, and health care. Themuch bigger threat to traditional retail is coming from onlineretail, mostly Amazon, that has gobbled up the lion’s share ofonline retail (about 25% of all online retail), and has beengrowing at astounding rates like 15% to 20% a year since 2008.Apparel and electron-ics are also the largest sales items foronline retailers, so the physical stores and the online giant allcompete selling the same goods. Traditional retailers have spentover a billion dollars in the last decade trying to become onlineretailers, and meet consumers wherever they want to buy, online, orat the store. It’s called an “omnichannel” strategy: using multiplechannels like physical stores and online Web and mobile apps tosell products. Many traditional large retailers such as Walmart,Macys, and Costco, have wound up in the top ten online retailrankings. But so far the omnichannel strategy has not beenespecially successful in keeping up with Amazon’s growth. In whatpromises to be the online battle of the decade, the two biggestplayers, the heavy weights, Walmart and Amazon, are going head tohead for the consumer dollar. In a broader sense, it’s theonline-business model versus the physical- department-storebusi-ness model which was invented by Macy’s in 1870. But to befair to the traditional retailers who have developed their onlineand mobile sales channel, it’s more accurate to say it’s theomnichannel model versus the pure-online digital model of Amazon.Here’s how the two heavy weights shape up. Walmart’s revenues in2015 were $485.6 billion (the largest Fortune 500 company), it hadearnings of $15 billion (about a 3% margin) , and e-commerce salesof 13.7 billion (around 3% of total sales revenue). Walmart hasabout 5,200 stores of all kinds in the U.S. It produces around $15billion in free cash flow a year, and has about $9 billion cash onhand. In 2016 Walmart’s market value is in the area of $230billion. It’s sales growth in 2015 was 1.8%. Walmart employs about2.1 million people (1.4 million in the U.S. alone), making it thelargest employer in the world and the U.S. That works out to$231,000 of revenue for each employee. Amazon’s revenues in 2015were $107 billion (the largest e-commerce company, but only 35 inthe Fortune 500), it had earnings of $596 million (about a 1.8%margin), and e-commerce sales of $92 billion. Amazon has about $8billion in cash on hand. In 2016 Amazon’s market value is about$366 billion, and its sales growth in 2015 was about 20%. Amazonemploys about 222 million people. That works out to $481,000 ofrevenue for each employee. The retail battle of the decade shapesup as a contest between a giant traditional retailer that isgrowing very slowly, and has only a tiny online presence, versusthe largest online retailer which is growing very rapidly, and hasno physical store presence. Both companies have significantfinancial assets, and nearly limitless credit, to build or acquirewhatever capabilities they choose. Walmart needs to develop newsystems and capabilities both in-house, and through acquisitions.In 2016 Walmart bought the start up Jet.com, and small butfast-growing Amazon competitor. Videos 1 and Video 2 describeWalmart’s senior management strategy for developing a competitiveonline presence. The outcome will in part be determined by how wellWalmart can develop a competitive logistics system to compete withAmazon. The Instructional Videos for this chapter describe how bothWalmart and Amazon are devel-oping their fulfillment systems, andtheir plans to compete on delivery and fulfillment.

1. What are the three key assets that Walmart can leverage(build on) to compete with Amazon and other online retailers?

2. What is Walmart’s e-commerce strategy?

3. Why isn’t Walmart worried about the channel conflict betweenits online sales and its store sales?