The Whole Paycheck Tracker: Suppliers Feel The Squeeze Edition

There is something to be said for being a happy warrior, and Walmart U.S. CEO Greg Foran was certainly one this week when he spoke of Walmart’s ongoing battle with Amazon for control of the consumer’s whole paycheck. Foran described it as a “David and Goliath” battle – one of many Walmart has faced over its many decades in existence.

He also noted it was a lot more fun being David.

“There was a period in time when Walmart was David, and Sears and Kmart were Goliath. And it’s always fun being David. Everyone loves David. No one likes Goliath,” Foran said, speaking at a UBS Global Consumer and Retail Conference. “We woke up at some point in [the year] 2000 and found out we were Goliath. And when you are Goliath, you find that there are other Davids that start throwing stones at you, and you’ve got to learn to deal with that. If you become immobile, you just end up taking a lot of hits.”

Among the many Davids in the marketplace, Foran listed discounters, drug stores, traditional supermarkets and Amazon.

While that’s broadly accurate, by no stretch of the imagination can Amazon be called a “David” – in this or any fight. Amazon has a market cap that triples Walmart’s, it controls 6.4 percent of retail spending, AWS is as close to a money printing machine as a modern enterprise has ever created, the company bought Whole Foods for $13 billion as its opening act in grocery, it controls a roughly 50 percent share of online retail and is expanding into bookstores and cashierless convenience shops.

If Amazon is not a Goliath-sized player, then the term has absolutely no meaning.

And Goliath got bigger this week, with major moves in healthcare (and minor moves in pet care) – though there was also the rare step back in its retail efforts.

But Walmart has not by extension become David in this story – instead, it’s become a double Goliath battle. Ready to compete, Walmart is avidly tweaking its front and back-ends in efforts to protect and grow its share of the consumer’s bi-weekly check.

So what were the highlights?

Amazon

Big Move of the Week: The Healthcare Unveiling

After a long wait and a lot of anticipation build-up, Amazon, JPMorgan and Berkshire Hathaway have rolled out the name for their joint healthcare initiative:

Haven.

“We want to change the way people experience healthcare so that it is simpler, better and lower cost,” Dr. Atul Gawande, Haven’s CEO, said in a statement on Wednesday (March 6), according to CNBC. “We’ll start small, learn from the experience of patients and continue to expand to meet their needs.”

The initiative to create an independent healthcare firm focused on lowering costs and improving customer satisfaction was first announced fall. Apart from the name, the world got its first look at the new venture’s areas of focus, including simplifying the navigation of the healthcare system and expanding access to affordable treatments and prescription drugs.

The website also announced that Haven aims to work with clinicians and insurance companies to improve the overall healthcare system, and is also open to working with existing players such as insurers, providers and pharmacy benefit managers instead of uprooting them.

But, as former surgeon Gawande noted, they are quite focused on their goals.

“We will be relentless. We will ensure our work has high impact and is sustainable. And we are committed to doing this work for the long term,” he wrote of the venture.

Reset of the Week: The Pop-up Deflation

According to reports, Amazon will shutter all 87 of its pop-up stores in the United States by the end of next month, including small shopping spots in malls, Kohl’s stores and Whole Foods locations in 21 states. The pop-up shops are usually a few hundred square feet, featuring Amazon devices like the Kindle or Echo device line.

“After much review, we came to the decision to discontinue our pop-up kiosk program,” an Amazon spokeswoman said. The company’s physical retail ambitions will go on undeterred, but it seems its pop-up-based attempts are winding down.

Amazon will “provide a more comprehensive customer experience and broader selection” within their own established book and convenience store locations, the spokeswoman said. “We look forward to opening additional locations of both stores this year.”

Amazon didn’t say if pop-up stores outside the U.S. would be affected.

Surprise of the Week: Going to the Dogs

According to recent online sales measures, Amazon managed over $1 billion in pet food sales in 2018, a 20 percent year-on-year increase from 2017. The same study found that the pet food and feeding supplies category accounted for more than half of all pet supply sales on Amazon in the U.S., bringing in an  estimated $365 million in the third quarter of 2018 – nearly six times the size of the next largest category in pet products.

Amazon is, however, so far somewhat less successful at selling its own branded dog food, Wag. Pete Andrews, director of insights at Edge by Ascential, which did the study, said Wag brought in $2 billion in sales, a “negligible share in the current pet food category.”

But, he noted, Amazon does seem to be testing at least one other private-label dog food, which means they might not be a major challenger in the segment yet, but are clearly gathering data to become one.

Profit Push of the Week: The Supplier Purge

There seems to be something of a panic brewing among some merchants, as Amazon.com Inc. has reportedly abruptly stopped buying products from many of its wholesalers.

“If you’re heavily reliant on Amazon, which a lot of these vendors are, you’re in a lot of trouble,” said Dan Brownsher, chief executive officer of Channel Key, a Las Vegas eCommerce consulting business with more than 50 clients that sell more than $100 million of goods on Amazon annually. “If this goes on, it can put people out of business.”

Amazon is instead pushing its wholesale clients to skip the middleman, so to speak, and begin selling their goods directly as marketplace sellers. Amazon still makes a commission on those transactions, while losing all the risk and dropping the cost of purchasing, storing and shipping products. The move has put the squeeze on some wholesalers who source and buy materials months in advance, as they will now have to scramble if expected orders don’t come in.

“We regularly review our selling partner relationships, and may make changes when we see an opportunity to provide customers with improved selection, value and convenience,” Amazon said in an emailed statement to Bloomberg, declining to answer specific questions about the action.

Over half of all products sold on Amazon in 2018 were purchased via the marketplace, and revenue providing services to those merchants is growing at double the pace of revenue from the online store.

Walmart

Big Move of the Week: Rewriting the Rules for Returns

Returns are reportedly about to get a lot easier at Walmart. Instead of a trip to the service desk and a long wait in line, customers will only have to enter the shop, walk a few steps and return their unwanted item to a “customer host,” who will issue a refund at the store’s entrance.

“You’re soon going to be able to do a refund right at the front door of a Walmart store. The customer host will have the technology to do a refund for you right there, including cash,” noted CEO Foran.

It is one of a series of recent moves by Walmart to streamline the in-store experience, including efforts to enhance checkout self-scanners, add more pick-up towers to stores, expand curbside grocery pick-up and offer the “Check Out With Me” program, which allows employees to process shoppers’ purchases on mobile devices in the aisles.

Reset of the Week: Suppliers Pushed to Pick up the Pace

Amazon isn’t the only player entering tenuous ground with its suppliers this week. Walmart is raising its delivery goals for suppliers, asking them to deliver more goods on time. Specifically, the retailer wants suppliers to deliver full trucks of products within a two-day window 87 percent of the time, up from the previous 85 percent target. Those that partially fill their trucks must now hit a 70 percent on-time window, a big jump for the previous 50 percent target.

The penalty for making partial deliveries is also being adjusted. Under the new rules, suppliers face a fine of 3 percent of the cost of the goods sold for each case that fails to meet Walmart’s “on time, in full” requirements. They get two passes before being fined for non-compliance.

“When we receive the product that we ordered, we see better sales,” said Steve Bratspies, chief merchandising officer for Walmart U.S. Suppliers of the retail giant previously were evaluated on how consistently orders arrived on time, combined with how complete the orders were. Now, Walmart will evaluate suppliers on each part separately, so the performance of each piece of the delivery can be evaluated more easily, said Bratspies.

Surprise of the Week: Can’t Wait for Amazon to “Bring It On”

There is always something to be said for having a cheerful warrior attitude and putting a happy face on things, but it was still a bit surprising to hear the head of Walmart U.S. praising Amazon’s recent efforts – in particular, its plan to open a line of grocery stores separate from Whole Foods.

Walmart is big, scaled and incredibly powerful, especially when it comes to the world of grocery, which is one of the few remaining areas where the retailer maintains a compelling market share lead on Amazon (20 percent to 2 percent), a gap that Amazon has had some difficulty closing.

Still, most brands don sackcloth and anoint their head with ashes when they find out they have to compete with Amazon more than they already do.

Greg Foran says “bring it on.”

“I think competition makes us better. It galvanized an organization into doing something, so I like it,” he noted, adding that they might not always move to imitate Amazon, but the process of competing with them has pushed innovation. Walmart, he said, doesn’t try to launch a counterattack every time Amazon makes a new move – instead, it needs to know where it can win and build from there.

“This concept of the store being not just a good store, but also a fulfillment center feels like a pretty safe bet,” he said. “So place your bets where you know you’ve got it right. Put a foot in the water on some of the other things, and let’s test and learn. And some of the others, maybe you just sit back and wait and see.”

Not a bad attitude to take, perhaps, about the entire Walmart-Amazon fight for the whole paycheck – “sit back and wait and see.” We suspect things are a bit less laid-back behind the scenes, however – and the constant rollout of moves and countermoves offers some evidence of that claim.

Until next week with the latest and greatest.