Amazon should remain concerned about Wal-Mart’s every move as their fight intensifies since most Americans live close to a Wal-Mart store. According to former J.C. Penney CEO Ron Johnson, that worry should prompt Amazon to pursue once more, a major acquisition because the price fight that has lasted for almost ten years may not see an end anytime soon.
Speaking on CNBC’s “Fast Money,” Johnson, who is CEO and founder of Enjoy.com, said that even with Amazon’s rapid growth, Wal-Mart still enjoys an advantage since its brick-and-mortar presence puts most Americans at arm’s-length of the big box retailer enabling them choose through physical touch what is offered on Amazon.
Johnson, who has been upbeat on Wal-Mart since February, is being vindicated by the retailer’s rally that has seen its stock rise 44 percent in the past one year. This positions Wal-Mart as the main competitor to Amazon. According to Johnson, Amazon’s growth has been rapid as it expands its distribution centers which are turning out to be expensive to run compared to Wal-Mart’s stores, which in essence also act as warehouses.
Wal-Mart on the other hand has shifted its energies from expanding its physical footprint to strengthening its technology base in order to take advantage of both online and in-store traffic. This is a much easier task for the retail giant and may not cost it much in terms of capital outlay. Wal-Mart’s food segment recorded the highest quarterly sales growth in five years while the online unit led by Jet.com founder Marc Lore, registered a 60 percent growth in the third quarter. With the acquisition of Bonobos and Jet.com in the past few years, e-commerce is becoming a key strategy for Wal-Mart with a stream of items coming online coupled with incentives like free, two-day shipping.
Johnson maintained that Wal-Mart’s physical footprint gives it an advantage of being able to “forward deploy” inventory into stores making their operation much cheaper. This is what Amazon needs to counter and its acquisition of Whole Foods was a step in the right direction.
He added that although a big acquisition may not be in the works, Amazon will still lead its rivals for the foreseeable future.