Disrupting the David vs Goliath classic: Walmart’s catch up game with Amazon in the 21st Century

How has Walmart managed to keep up with Amazon's disruption of the retail ecosystem? Despite making large investments in its digital transformation, including the purchase of Jet.com at a $3.3 billion offering, Walmart has not matched Amazon's strategic success in terms of reducing supply chain costs and expanding its omnichannel offerings. Early signs of promise showed an increase of up to 44% in Walmart's digital sales from 2016-2017 vs Amazon's 29% growth, but is increased revenue growth enough to maintain a sustainable competitive advantage for the next few years?

For most of the 20th century, Walmart had long been the powerhouse driving the retail innovation front in America. From its humble beginnings in Rogers, Arkansas, the once modest store in a “food desert” became the model for retailers around the world by aligning its strategy around the four pillars of retail: every-day low prices, unmatched customer experience, extensive product variety, and ubiquitous locations and store formats. By 2017, Walmart had become the world’s largest retailer and world’s largest company, producing revenues of $486 billion. [1] However, this all changed in 1994 when Amazon disrupted the market by offering a wide selection of books through its e-commerce offerings, powered by rapid innovation in supply chain and obsession with agile processes. In what many could claim is the quintessential David vs Goliath match, Amazon leveraged its competitive advantages by serving the low-end of consumer goods and rapidly ascending the value chain with new offerings in electronics, music, beauty, and accessories. Despite Walmart’s domination over the physical retail space, by 2011 Walmart’s online sales were estimated at only $7.7 billion, versus Amazon’s $61 billion [2]. As the adoption of online shopping reaches over 90% penetration in most developed and developing countries, will Walmart leverage its strategic strengths to focus its retail direction, or will Amazon continue to replace Walmart as the king of retailers in the 21st century?

Supply Chain Innovation

Long before our modern internet existed, Walmart’s distribution network was the largest operational system in the world. Using a system of distribution hubs around the US, a self-managed fleet of trucks, and an intelligent inventory system, Walmart created a highly responsive that benefited from additive economies of scale. In fact, distribution costs were 2% of sales in at Walmart’s first stores, lower than other key competitors like K-Mart or Sears [3]. Yet, the same competitive advantage that powered Walmart’s meteoric rise in the 20th century has also become its Achilles heel when playing the game of 2-day delivery of online merchandise. Starting in 2017, Walmart began offering free shipping for minimum purchases of $35, but unlike Amazon Prime, its operations did not offset expensive unit economics with an annual membership fee. Because of this risky decision, analysts estimate that Walmart’s e-commerce division will lose $1 billion in 2019 on sales of between $21 billion and $22 billion [4]. Not only that, but Walmart’s scale has paradoxically become a barrier for innovation in its distribution centers, which Amazon has reformatted by leveraging the supply chain of third-party operators and an extension of airplane and carrier fleets.  As a Walmart executive confessed, “The challenge is how Walmart, a large traditional retailer, can operate and compete at a nimble pace”[5]. Given that Walmart’s strategy for 2019-2020 is to empower the omnichannel approach, will its investments in retrofitting distribution centers pay enough dividends, or is it too late to reimagine the supply chain?

Omnichannel Product Offerings

Before the birth of Netflix, Paypal, and Fellow Barber, Walmart Supercenters were the retail Disneylands for consumers to shop for groceries, preview a DVD, cash their paychecks, and even cut their hair. Turning the store inventory as a strategic asset, in the early 2000s Walmart offered consumers the enhanced experience of shopping online in the morning and picking up their groceries in the afternoon.  For the first time, Americans had the opportunity to experience the omnichannel journey of bridging the digital aisle with the physical front. This all changed in 2017, when Amazon acquired Whole Foods stores for $13.7 billion, giving it an edge in the fresh produce market. By acquiring Whole Foods, Amazon gained 448 stores and 15 distribution centers, but most importantly, it solidified its ability to enhance its product offerings by turning concept of retail into a customer experience. As Jeff Bezos would admit, Amazon operated under negative profits for the first part of the 21st century to gradually envelop the consumer around its services, which expanded from books to Prime Video, and from Amazon Prime to Prime Day. By having a physical footprint, Amazon empowered its consumers by offering special Prime member pricing, reduced overall prices by reformatting Whole Food’s supply chain, thus creating the Prime experience both online and offline. Even if Walmart has made great strides in its e-commerce sales growth, one thing remains clear: Retail is no longer a matter of four strategic pillars, but a strategic ecosystem with the customer at its center. Given Walmart’s great history of innovation under Sam Walton, one would think that the iconic retailer would have been the dominant player in the omnichannel ecosystem, but the ability for culture and strategic barriers to mute innovation can be the fatal nails that end a journey of sustained competitive advantage. In a world where consumers expect immediacy, the nimble David kills the blind Goliath.


[1] Sandra S. Vance and Roy V. Scott, Wal-Mart: A History of Sam Walton’s Retail phenomenon, (New York: Twayne, 1994).

[2] Don Davis, “Walmart.com ups its game”, October 15, 2013, DigitalCommerce 360. www.internetretailer.com/2013/10/15/walmartcom-upts-its-game, accessed September 2019.

[3] Michael Bergdahl, “What I Learned from Sam Walton: How to Compete and Thrive in a Wal-Mart World,” 2006.

[4] Daniel B. Kiline, “Walmart has already lost its battle with Amazon”, www.fool.com/investing/2019/07/10/walmart-has-already-lost-its-battle-with-amazon.aspx accessed September 2019

[5] Michael E. Porter. Jorge Ramirez-Vallejo, “Walmart: Navigating a changing retail landscape”, HBS Case Study Rev: July 23, 2019



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Student comments on Disrupting the David vs Goliath classic: Walmart’s catch up game with Amazon in the 21st Century

  1. Great read – thanks Leonardo! When I think about Walmart (and other brick-and-mortar retailers), I always think about what their strategy could be to keep up with Amazon. As you mentioned, many of the assets that made these retailers a Goliath have turned into technical and cultural debt in the era of digital transformation. Would be curious to think of exemplar retailers who have done a good job of managing the transformation of the retail space to digital, and why they have been able to do so.

  2. I find it interesting that Walmart’s Achilles heel is less its ability to effectively manage digital channels, but high unit economics spanning from an extensive distribution network. If Amazon has been able to make their unit economics work by using third party supply chain operators, why hasn’t Walmart chosen to do the same? It would appear that working with third parties in e-commerce is an easier change to make than establishing its own distribution network.

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