Two trends have emerged from major retailers’ fourth-quarter data over the past few weeks: 1) inflation is weakening consumer demand; and 2) their ad units are growing like crazy. This was especially true for Amazon and Walmart, both of which had weak 2023 retail outlooks, while also showing highly profitable and fast-growing ad units.
As Walmart scrambles to sue 3P sellers into joining its marketplace — expanding its range of products and convincing more customers to shop there — these two trends could turn the battle in its favor. shift.
To help us unpack this, we spoke with Alasdair McLean-Foreman, founder and CEO of Teikametrics, a leading AI-powered Marketplace Optimization Platform that has managed $8 billion in GMV for brands selling and advertising on Amazon, Walmart and more.
We reviewed key findings from Teikametrics’ Walmart Q4 2022 Benchmark Report and the Amazon Q4 2022 Benchmark Report to understand advertising trends for each marketplace and how they could impact the way ecommerce brands think about selling in each marketplace.
Gary Drenik: Before we look at revenue, advertising and inflation, can you tell us a bit about the evolution of Walmart’s marketplace and how the battle between Amazon and Walmart has evolved over time?
Alasdair McLean-Foreman: Walmart had more than 2,000 stores by the time Amazon launched in 1996, but the eCommerce party was overdue and didn’t launch its own marketplace until 2009.
It wasn’t until it acquired Jet.com in 2016 that it really made waves in e-commerce, and around the time of the pandemic, it started investing meaningfully in a flywheel similar to Amazon’s.
In 2020, it launched Walmart+, its subscription service somewhat similar to Prime, but also with in-store and gas benefits. It also launched Walmart Fulfillment Services (WFS) to compete with Amazon’s popular Fulfillment by Amazon (FBA) program, making it easier for sellers to store and deliver inventory to their customers.
In 2021, Walmart opened its marketplace to international sellers. They really started courting new e-commerce sellers and attending popular industry conferences traditionally dominated by Amazon.
Drenik: So explain the considerations for ecommerce brands about selling on each marketplace. Why would an Amazon seller move to Walmart or vice versa?
McLean-Foreman: Well, it’s really about being where your customers are. Brands have learned that being omnichannel is the way forward. It’s not one or the other; it’s both.
But each marketplace offers different value props for sellers.
There’s no escaping the size and scale of Amazon’s marketplace. Amazon’s e-commerce revenue in the fourth quarter was more than Walmart’s full-year e-commerce revenue ($64.53 billion vs. $49.56 billion). According to a recent consumer survey by Prosper Insights & Analytics, 61.8% of Americans cite Amazon as the site they use most often to buy products, while only 8.6% cite Walmart. However, Amazon’s numbers are down from 2022, when it was over 66%. Meanwhile, Walmart’s stock grew.
You can see it in their earnings report. Walmart’s e-commerce sales are growing faster than Amazon’s. In the fourth quarter, Walmart’s e-commerce sales grew 17%, while Amazon’s fell 2%.
Selling on the Walmart marketplace also offers the opportunity to be invited to sell at Walmart stores. And when we factor in physical sales, Walmart is generally a larger company, so that’s a very attractive proposition for most brands.
Meanwhile, the cost of advertising on Walmart is equally attractive. According to our Walmart Q4 2022 Benchmark Report, the average cost-per-click (CPC) for ads on the Walmart marketplace was $0.38, down 26% year-over-year. Meanwhile, our Amazon Q4 2022 Benchmark Report showed that the average CPC on Amazon was $0.85, up slightly from the year before.
An important cause of the lower CPCs is less competition from other brands. Walmart has about 150,000 sellers as of 2022, while Amazon eclipsed 2 million active sellers in the same year. Walmart wants to grow the product range in its marketplace, which is why it’s aggressively going after new sellers — it even recently announced new seller savings to convince them to join.
Selling on Walmart is an investment that we’ve seen have a significant impact on our customers in 2022 moving into 2023. At Walmart today, you can still find niches that aren’t as crowded, advertise for relatively little, and benefit from the growth of a marketplace that’s starting to look a lot more like Amazon a few years ago.
Drenik: While you were talking about advertising, I thought about how much advertising and marketing has changed in recent years as 3P cookies are being phased out. How have Amazon and Walmart embraced new forms of advertising, and how does that reframe their battle for e-commerce brands?
McLean-Foreman: The hot story in our space over the past few quarters has been the rise of Retail Media Networks (RMN). According to the World Advertising Research Center, retail media ad spending is expected to reach $121.9 billion globally by 2023, up 10.1% from last year.
They are essentially digital ads built within a retailer’s marketplace. It’s so much more than just sponsored ads at the top of Amazon searches — in addition to providing in-store digital advertising opportunities, RMN provides key proprietary data about that retailer’s customers. In a world without cookies, they represent the future of personalized marketing.
Amazon’s advertising division was one of the fastest growing business units in the fourth quarter, nearly matching AWS’s 19% growth rate. Walmart Connect, its RMN, grew even faster at 41% in the US.
Given the huge online and in-store audiences both companies have, their struggles are shifting from simply selling products to consumers to selling advertising space and customer insights to brands.
Drenik: Very interesting. Let’s spin a bit by talking about inflation. We are still at 6.41%. How will this affect both companies? What do you think that means for consumers and merchants who want to reach those consumers?
McLean-Foreman: What’s interesting about inflation when it comes to Amazon and Walmart is that they’re both sellers of value. They offer low prices and convenience. Some experts have even argued that by enabling millions of sellers to buy and sell low-cost products worldwide, Amazon became a macroeconomic force that kept inflation low in the 2010s.
But now inflation is here, and it’s impacting each company differently.
While Amazon’s retail business saw a small decline, Walmart’s has risen, but not by what you’d expect.
Walmart has traditionally been associated with lower-income buyers, but it’s making real gains with higher-income buyers. On the Q4 earnings call, Doug McMillon, CEO of Walmart, commented, “We’re gaining market share across all income cohorts, including the high end segment, which accounted for nearly half of the gains we saw again in the US this quarter.”
This takes place in the data. According to Prosper Insights & Analytics’ monthly consumer survey, the percentage of high-income households ($150k+) that are members of Walmart+ has steadily increased, from 12.7% in February 2022 to 28% in February 2023.
Walmart+ offers these shoppers unique savings that Amazon can’t or can’t provide to the same degree, such as gas and groceries, two areas particularly impacted by inflation.
The question is whether the free shipping and other eCommerce savings that come with Walmart+ can entice these shoppers to become longer-term eCommerce customers as well.
Walmart did give a pretty soft outlook for 2023, but they may have reason to believe that their customers will continue to spend compared to their peers. For example, Prosper’s research found that Walmart+ shoppers are significantly less likely to cut back due to the state of the economy. Nearly 50% of Prime members plan to spend less in 2023, while only 38% of Walmart+ shoppers plan to do the same.
Drenik: What does this mean for brands?
McLean-Foreman: Well, the battle is shifting. Walmart has the infrastructure to capture market share in an inflationary environment and they are gaining new more affluent customers.
Let’s be clear. Walmart won’t overtake Amazon any time soon, but there are clear trends that make it an attractive place for brands to invest in for years to come. Some brands may want to bet that Walmart’s ability to gain market share in essential categories (gasoline, groceries, etc.) will translate into longer-term eCommerce growth.
And when they do, advertising on Walmart, while cheaper, won’t be like it was on Amazon years ago when you could just launch a product without an advertising strategy. Both companies are betting that advertising will become centers of growth and profit, and advertising will become a necessity.
Drenik: Very interesting. Thank you Alasdair. It was a pleasure speaking with you!
McLean-Foreman: Likewise, thank you for having me!