Supply Chain News: Walmart and Amazon by the Numbers 2017

Our Annual Review of the World's Two Most Important Retailers

I think it is rather safe to say that the two most important retailers in the world today are Walmart and Amazon.com.

Walmart earns that place due to its stature as the world's largest merchant (and company) and one that represents an often substantial share of many consumer goods companies' total sales. Amazon obviously earns a spot as the dominant ecommerce company, which is where all the action is right now, sucking most of the oxygen out of the retail room. It continues its phenomenal growth - hardly even slowing down in the face of the law of big numbers - and has been an innovation machine in terms of fulfillment and more (e.g., in the past  few months, the fascinating new Go store concept, new supply chain-related patents it seems almost weekly, and more).

Gilmore Says.... By our measure, Walmart had an 11% of US retail sales in 2016, basically flat over the past 5 years, and down from a peak of 12% in 2009. What do you say? Click here to send us your comments

So we've been looking at both of these retail giants "by the numbers" in recent years, and it has become one of our most popular columns of the year, forwarded by many SCDigest readers to others in their companies.

But as I will explain in a second, getting your arms around the numbers is often harder than you might think.

What Walmart and Amazon are doing is obviously of interest to most other retail and consumer goods manufacturers, and I hope others as well, as in the end almost every company is connected to the retail supply chain.

So let's start with Walmart, which reported its full year earnings, ending its 2017 fiscal year, at the end of January.

While Walmart is an incredible giant, its growth has slowed dramatically in recent years. As can be seen in the chart below, Walmart's US sales (Walmart stores + Sam's Club) grew very rapidly in the beginning years of the 2000s, primarily by adding new superstores carrying groceries at a rapid pace into new markets.

But that growth soon decelerated, and in the recession year of 2009 started a pattern of very low growth that is not much above inflation on average, meaning real growth is almost flat or up a percent or so at best. US sales reached $365.2 billion last year, about double the $188 billion the company had in 2002, but the pace of that growth has obviously slowed substantially down. The Cumulative Average Growth Rate (CAGR) has averaged an impressive 5.8% since 2002, but has slowed to 2.3% since 2010.

And surprising to me, international growth continues to plateau, despite an awful lot of attention and investment there. Walmart international sales last year were $116.1 billion, down from $123.4 billion in fiscal 2016, though the rising dollar is a factor in that decline. Still, international is clearly not the Walmart growth engine once imagined.

Walmart still doesn't provide much detail on its ecommerce numbers, but it says it saw 36% growth in on-line sales in the US in Q4. However, much/most of that comes as a result of the acquisition of ecommerce site Jet.com last year. Globably, ecommerce sales were up 15% in Q4, well behind Amazon's growth, as we shall see.

Not all that many years ago, there were concerns (I think legitimately at the time) about Walmart gobbling a giant, monopolistic share of the US retail market. That fear has simply faded. With the recent very modest sales growth, Walmart's share of US retail has flatlined. SCDigest developed a methodology several years ago, where we compare Walmart's US sales versus relevant US retail figures - total retail minus autos and parts, gas station sales, and restaurants/bars.

It's not quite perfect because Yes Walmart does sell some gasoline, but they don't break it out in a way we can use. Nevertheless, I think what we have is pretty good - and does reflect a higher share of US retail for Walmart than if you do not exclude those categories, which is how it is usually reported. When you hear all these numbers, make sure you understand how they are calculated.

By our measure, Walmart had an 11% of US retail sales in 2016, basically flat over the past 5 years, and down from a peak of 12% in 2009. It simply does not appear any more that Walmart will take over the retail industry. That is an interesting and important change - and its share seems unlikely to go much higher to me, absent an acquisition. Would the FTC now let Walmart buy say Kroger or CVS? Hard to say.

Now let's turn to Amazon, a company that provides a lot of numbers to analysts but getting the best insight from them takes some work. That is because of its several business units and how it computes certain ratios, as I will explain in a moment.

Overall Amazon 2016 revenues were up 27% to $135.9 billion, but that includes digital media sales and its rapidly growing web services unit. I think it is more interesting to look at Amazon's merchandise sales, as shown in the chart below (books are not included in these merchandise numbers).

That shows Amazon was able to grow merchandise sales an amazing 28.7% in North America last year, down just barely from the growth rate of the year before even as the baseline number continues to rise. International merchandise sales growth jumped back to 31.3%, way up from 2015, as the effects of currency on its international numbers was less significant. Simply amazing.

One thing that vexes me is that I do not understand how and where Amazon books revenue for its "marketplace" service, where a customer is buying not from Amazon but direct from the supplier on he Amazon site. Do Amazon's fees for that go into merchandise sales? I think so, but I am trying to confirm. All this is complicated by the fact that sometimes Amazon does the fulfillment for many of these marketplace sellers. Neither of those numbers is broken out.

In the end, I am trying to adjust the numbers Amazon reports for things like shipping and fulfillment costs against the right denominator.

For example, Amazon reports its net shipping costs - what it spends versus how much it receives from Amazon customers. Net shipping costs in Q4, for example, were an incredible $2.63 billion, and about $7.1 billion for all of 2016. Let me say that again - that was $7.1 billion loss with a B on shipping. No wonder Amazon struggles to turn a profit. And we remember when companies used to make money on shipping.

The Amazon figures do report shipping costs as a percent of worldwide sales - last year that was about 5%. That's high enough, but SCDigest then compares those net shipping costs just against merchandise sales - eliminating revenues from web services and digital media that have no shipping. Logically, this makes the picture worse, as shown in the graphic below, with net cost hitting a whopping 7.5% of merchandise sales in Q3, before declining to a still hefty 6.2% in Q4. So much for building fulfillment centers closer to customers.

But it is hard to fully sort this out without a better understanding of how marketplace and fulfillment by Amazon is accounted for. But it's big loss on shipping no matter how you slice it.

I am out of room, even though I have more - such as doing the same sort of adjustment to Amazon's reported fulfillment costs. Will do a part 2 on this as I did last year in a week or two.

Any reaction to these numbers from Amazon and Walmart? Any other data you would like to see? Let us know your thoughts at the Feedback button or section below.

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