Amazon.com, Inc. is putting intense pressure on Wal-Mart Stores, Inc. with its aggressive pricing and prompt delivery, Jim Cramer said on CNBC “Mad Dash.” And the only thing keeping investors from selling the aging retailer’s stock is its attractive 3 percent dividend yield, he said.
“Consumers don’t want to order online and pick things up in the store, which is part of Wal-Mart’s online strategy,” Cramer said. “Amazon is as every bit competitive on price as Wal-Mart but makes it so much easier to shop.”
Up until a few years ago, Walmart was the undisputed retail king. Its 2012 revenue of $444 billion was 16 times that of Amazon. But online retail evolved and a new narrative started to unfold. Amazon.com, Inc. grew much faster than Walmart’s traditional retail model. And as the two companies increasingly began to compete for the same customer, price wars broke out.
Wal-Mart Stores, Inc. ’s sales are still much larger. But if you look at Amazon’s revenue per employee, Wal-Mart has a lot of catching up to do.
And catching up it is.
Wal-Mart Tries to Woo Back Customers
In its bid to compete with Amazon.com, Inc. , Wal-Mart has been focusing on in-store pickup programs that allow customers to shop online and pick up their purchases at retail stores.
In-store pickups are supposed to make shopping much easier. Customers can skip lines and right away get their items without having to dish out higher shipping rates.
This provides a cheaper option for customers. As Kantar Retail, a consulting firm says, “The U.S. is a car-based country. Convenience for many Americans isn’t waiting at home for something to show up.” Moreover, the fact that 70 percent of the U.S. population lives within 5 miles of a WalMart store, makes pick-up programs an efficient distribution model.
On the price front, Wal-Mart Stores, Inc. introduced a feature in its mobile app called the Savings Catcher which should appeal to price conscious buyers. This feature allows customers to verify that the items they purchased were lowest priced among all other retailers. If another retailer offers the item(s) at cheaper price(s), Wal-Mart returns the difference in the form of credits.
Amazon Doesn’t Dole Out Billions of Dollars
Wal-Mart Stores, Inc. is surely initiating some bold new steps. It had to, given that its revenue and net income have both flattened in recent years. But one area where Amazon.com, Inc. has a huge advantage is that it doesn’t have to spend billions of dollars a year just to keep shareholders happy.
Wal-Mart pays out $6 billion a year in dividends. And even then, investors have been driving its stock down. Contrast that with Amazon that puts back whatever it earns in to future growth.
Amazon.com, Inc. ’s shares are soaring this year while Walmart’s are sinking. Dividends alone can’t keep investors happy. They also seek out some growth.