Retailing in the Week Ahead, Week 51

Quick! Without thinking, write down the answer to this question: “Who is the Number One retailer in the world?” Now, go and ask five other people. Did everyone write down the same answer?

Not long ago, that question was relatively easy to answer. For many years, Walmart held the triple-crown of retail jumbo-sizedness. They held the title of largest retailer by annual sales and at the same time had the largest market cap and, while not measured, would have held highest sales via any platform (also called GMV – Gross Merchandise Volume).

Today, we’re looking at something altogether different. Rather than have one clear answer, we have three to pick from, much like in World Heavyweight Boxing. So, what are the arguments for and against each of our potential champions? Let’s examine.

It’s easy to argue for Walmart, but not based on their revenues. Yes, Walmart registered revenues of USD500 billion in its last annual report. However, what is more impressive is that the company delivered USD20 billion in operating income. What’s more, most of this operating income derives directly from the sale of retail goods. Our other two contenders simply lack this type of profit. However, a warning: Walmart’s operating profits have fallen from a 2015 high of USD27 billion. 

Why you might argue for Walmart: Bottom-line profit is still the ultimate metric for most business leaders. If you are a fan of traditional retailing, this is a company that knows how to manage SKUs, stores and operations very well.

It’s also easy to argue for Alibaba, but only based on third party (3P) revenues. Alibaba is the aggregator of aggregators, making it easy for anyone to list a product and sell it from anywhere to anyone. It’s true that most of it is in China and a growing percentage of it is first party (1P), but even so, Alibaba’s 3P numbers are stunning. The group reported GMV of CNY4,820 billion for China in its last annual report via its two main domestic platforms Taobao and Tmall. That level of GMV translates into USD767 billion. Still, when translating these results into direct revenue attributed to the group and direct operating profit, we net out at USD40 billion revenues and USD11 billion operating income.

Why you might argue for Alibaba: Alibaba has been able to achieve remarkable growth in a wide range of new forms of retailing and consumer engagements and has just started internationalizing what they have achieved.

Amazon only becomes a favourite when you look at Market Capitalization. This represents the ‘value’ of the company based on the number of outstanding shares and the price of the shares. When we compare the Big 3, the result, as of WSJ website on 17 December 2018 is: Amazon = USD778 billion. Alibaba = USD386 billion. Walmart = USD267 billion. However, with only USD4 billion in operating income, Amazon ranks third in this important KPI. Rivals watch-out, Amazon’s net income per diluted common share has grown to USD6.15, higher than both Alibaba at USD3.91 and Walmart at USD3.28.

Why you might argue for Amazon: Amazon’s high market-cap protects them from takeover, gives them freedom to engage in mergers and acquisitions using shares rather than cash, and ultimately can allow them to invest in bigger and longer-term projects than their rivals.   

Implications for 2019
Everyone loves a good ranking, but more than that they love a debate about rankings. Looking at these three very large retailers in three different ways illustrates the complexity involved in engaging shoppers over the past decade. The bigger question is what will it take to engage consumers in the next 10 years, say from now until 2028? When we look at the three ways to rank ‘the biggest’, it is clear that each retailer would like some of what each of our three champions has – the ability to create profits, to reach millions of consumers across millions of categories, and the ability to excite investors.

When we look back at 2018, we might just recognise it as the last year where all three of these global giants deployed entirely different strategies to achieve success. Rolling into 2019, we may face a situation where the differences between these three giants become more difficult to identify. Hold on for the ride.

Here are links to great pieces of work we published on Retail IQ in Week 50:

When you get a chance, please share your thoughts or questions on ‘Number One’, or any other topic. Good luck in the week year ahead.


Ray Gaul – and @KantarConsulting or @RayGaul on Twitter plus LinkedIn.

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