TD Cowen Senior Research Analyst Oliver Chen joins Yahoo Finance Live to discuss Walmart’s battle with Amazon and how the rail giant is aiming to attract customers to its online subscription service Walmart+, consumer trends, and the outlook for Amazon as it pushes brick-and-mortar strategy.
Video Transcript
JARED BLIKRE: Walmart closing the gap in its battle to-- battle with Amazon to attract customers to its online subscription service by cashing in on higher-income households. Joining us now is TD Cowan senior research analyst Oliver Chen. Oliver, thank you for joining us here today.
So let me get this straight. So we know that Walmart+ has been kind of encroaching on Walmart-- Amazon in terms of e-commerce and their piece of the pie there. What is the latest, and how far have they made inroads into this?
OLIVER CHEN: Yeah, Jared, we are excited about the Walmart story. The bottom line is 90% of America is within 10 miles of a Walmart, so thousands of locations are very strategically competitive in terms of what's happening in retail. And the future of retail, in our view, is bricks plus clicks. So the Walmart thesis is playing out, and Walmart+ is a very key competitive advantage in terms of Walmart having its own membership program to compete with Amazon Prime.
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What's really happened at Walmart is increased convenience, and that's happened with curbside pickup; buy online, pickup in store delivery. And shoppers this year are going back to stores too. Walmart is one of the US's biggest grocers as well with over 55% of revenue being grocery at Walmart, and that's a very helpful topic too in terms of frequency, scale, and the Walmart ecosystem. The other point on Walmart+ is you get a gas discount, and everybody loves that.
JARED BLIKRE: Yes and let me just get back to the groceries for a second because Walmart+ offers free delivery on orders more than $35. Amazon has raised that same threshold to $150. Just wondering if that's making a dent in the numbers yet.
OLIVER CHEN: Yeah, consumers right now are looking for value across the board, and Walmart has the advantage of scale and also extremely efficient operations in stores and curbside pickup and really staffing that appropriately. The longer-term basis, Walmart is thinking about micro fulfillment centers.
But you're 100% correct in terms of what customers are looking for. Inflation is a hot and important topic taking money away from consumer dollars, so everybody's looking for value. And don't forget, zooming out, Walmart's focused on everyday low prices. That's a core competency for many, many years of the Walmart story.
JARED BLIKRE: And let me ask you how that jives with the demographic, I guess, stats that I'm looking at here. It looks like Walmart+ very much skewed towards younger people, the 35-- we have the 25 to 34, 35 to 44. Those are getting about 25% of the market share. Then you go up. On the flip side, you have Amazon in the 65-plus group. They get 17.5%. That dwarfs what Walmart+ is getting right now. So if these trends remain in place, what does this say about the future of these services for Amazon and Walmart?
OLIVER CHEN: Yeah, we're excited that Walmart has really embraced a younger customer and also the higher-income customer through partnerships with American Express and others. Convenience is something all consumers value. So if you think about curbside pickup, very, very high customer satisfaction, Net Promoter Scores, and time is a luxury. So Walmart enabling you to save time. So skewing with younger customers, attracting higher-household-income customers, those are all very strong positives for retail, and all of retail is really looking for this in different ways.
So the future is bright. What's happening over time with Walmart+ is the company is likely to add more convenience and more services.
And Walmart in America plays a big role. I grew up in Natchitoches, Louisiana, and Walmart, the supercenter, was a big hub of the whole community. You know, I got vaccinated at the Walmart pharmacy. Thinking about Walmart and financial services, this is a much more holistic global view, and Walmart's DNA is stores, having these stores and having that fixed expense base. Leveraging that is very powerful for the long term.
JARED BLIKRE: And that something, stores, is not in Amazon's DNA. Of course, they own Whole Foods, huge footprint there. But I read-- I think it was two weeks ago they're closing certain Amazon Go locations. Now, it's not like they had a huge network of these stores. That's where you can pop in and pick anything off the shelf you want and just exit without a cashier experience. But what does that say about Amazon's push into the brick and mortar?
OLIVER CHEN: Well, it's very tough to run stores. Also what's happened with stocks and cost of capital is an important focus on profitability. That is Walmart's core competency in terms of retail and stores. And even running these very efficiently, it's not a high-margin business.
So lots of developments here in terms of the future, but the future is digital, moving more physical with a lot of the changes we're seeing. Also, grocery is a very fragmented industry, but we're looking at a lot of technology.
We like what Walmart is doing with artificial intelligence and image recognition and inventory management. And what we look at in terms of Amazon is a work in progress with what's happening there. I don't cover the stock, but they're great points you're making.
JARED BLIKRE: All right, got to leave it there. TD Cowen senior research analyst Oliver Chen, thank you.