At the end of February 2018, the Walmart stock price had one of it's biggest percentage declines in its history. The company's explanation is related to its movement towards digitalisation, which caused lower margin profits and increases in costs of operations.
After several attempts at going-digital - dragging Walmart itself into e-Commerce - the management of the big American retail chain has finally decided to proceed with the acquisition of Jet.com to try to compete with the big e-commerce companies such as Amazon.
On the other hand, we see that Amazon and Alibaba are starting to invest in brick-and-mortar. It may look like a paradox. They caused the closure of many retail stores, and now they are investing millions to create new ones. What are the reasons behind this strategy?
Opening physical stores, Amazon is trying to create a bridge between itself and customers. This doesn't represent a strategy to increase turnovers, but instead it is something that goes far beyond that. The aim is to create experiences for their clients and to create more brand awareness and recognition. The objective is to create a COMMUNITY instead of a general group of consumers.
Customers who go directly to retail stores are looking for something different, either because they don't know yet what they are looking for or because they prefer to create interpersonal relations, exchanging of feedback and suggestions for example. This is something which is harder to create and obtain within online platforms, which also have their own positive aspects as well: most of the times you don't even have to move from your sofa to complete an order. What Amazon wants to bring as a bonus, compared to already existing physical retail stores, is the aspect of automation. Shopping at Amazon's retail stores will not only will be faster thanks to the automation of the shopping process, but analysts will be able to create a more personalised experience thanks to the information they gain from the net.
Alibaba as well has started to engage itself in "click-and-mortar" businesses lately, following its main competitor. However, in this case the reasons may appear quite different. The strategy of the Chinese company may have been driven by the desire of acquiring more market share, since access to the web outside of China may be more challenging for a company operating within China.
The message that they want to share is that they are taking a step back in order to take 2 steps forward in the future. Applying this strategy, the management is certainly undertaking a risk, because they will incur in fixed cost and they are not yet sure of the outcomes. What they rely on is that they are not substituting themselves to the old traditional retail stores, but they are creating a new experience. This is why, while Walmart won't be able to compete with such giants in e-commerce, it does at least introduce some of its own innovations. Amazon and Alibaba will not only compete with big retail stores but will also bring something new in the market.