Walmart in unofficial coalition to tackle Amazon

Washington

BATTLING Amazon isn't easy - even for the world's largest retail chain.

Fear of Jeff Bezos helps explain why Walmart has in recent years forged alliances with Google, Microsoft, China's JD.com and other tech players. The members of the unofficial coalition all share a common goal: preventing Amazon from ruling the digital galaxy. It's like a movie in which a ragtag alliance faces down an all-powerful foe, only in this case the plucky rebels also happen to be some of the world's most powerful companies.

Walmart has created a formidable e-commerce business by investing billions to hire engineers and data scientists, building automated distribution centres tailored for Web orders and rolling out curbside pickup for online grocery orders at more than 2,000 stores. The retailer generated US$11.5 billion in online sales last year in the US, and a redesigned website that better showcases apparel and home decor is expected to boost that total by 40 per cent in 2018.

But Walmart knows it can no longer go it alone. Amazon.com now captures 49 per cent of the US e-commerce market, according to researcher EMarketer Inc, up from 43.5 per cent last year. Amazon already dominates entertainment and toys and is now pushing into areas that are dear to Walmart. The acquisition of upscale grocer Whole Foods Market last year threatens a business that makes up more than half of Walmart's US sales.

The Amazon menace has prompted a strategic shift inside Walmart's headquarters.

"It's the classic build-or-buy conundrum," says Sucharita Kodali, an analyst at Forrester Research Inc. "Walmart needs to innovate, but it just doesn't make sense for it to build much of it in-house." Historically, the massive retailer has been reluctant to cozy up with others, preferring to keep the benefits of any new venture to itself. The company's track record with partnerships isn't great: Walmart's first alliances in the key markets of India and China, for instance, were eventually abandoned.

Walmart has studied those setbacks. "We're learning to partner with others in new ways," chief executive officer Doug McMillon has said.

Take Google. A pact forged last year allows Walmart customers to link their store accounts to Google's Express shopping service and - in a clear effort to counterbalance Amazon's Echo - use voice-activated Google Home devices to buy everything from groceries to garden hoses. The purchase histories of Walmart shoppers will help Google make personalised recommendations, a key feature needed to make voice-activated shopping more than a novelty. The deal was a big step for Walmart, which tends to guard customer data fiercely. But it was a necessary way to create an alternative to Amazon's voice-activated speakers that play music, turn on air conditioners and, of course, handle shopping orders. It also showed how the battleground has shifted from prices - something Walmart knows well - to convenience.

"For today's customer, the experience we create has to be easy, fast, friendly and fun," said Greg Foran, CEO of Walmart US Walmart has a proven willingness to spend big in the pursuit of an edge. In India, a market Amazon covets and has spent billions pursuing, Walmart paid US$16 billion to grab a majority stake in Flipkart, the nation's biggest online seller.

But outright acquisitions such as Flipkart and Jet.com in the US aren't the only plays it can run nowadays. In Japan, Walmart inked a deal this year with Rakuten to help revamp its online grocery business while also selling Rakuten's Kobo e-reader, an Amazon Kindle wannabe. Walmart has said it's committed to the pact, despite reports that it's exploring a sale of its Japanese chain Seiyu.

Back home, Walmart's most recent deal that will help it take on Amazon is with Microsoft Corp, which will provide cloud-based services over the next five years across all of the retailer's businesses. This is a broadside against Amazon, whose cloud unit dominates the market. Walmart will employ Microsoft's artificial intelligence and machine learning capabilities to route trucks faster to stores and speed up the online checkout process.

"Partnering with companies allows Walmart to benefit from the investment of third parties and add its own considerable advantages," said Kirthi Kalyanam, director of the Retail Management Institute at Santa Clara University's Leavey School of Business.

The anti-Amazon alliance won't guarantee success against the online giant. But each member of its resistance provides something Walmart can't do well alone. One danger, though, is a potential clash of cultures between the tech heavyweights and a retailer with roots in north-western Arkansas.

"In Silicon Valley, culture eats strategy for breakfast," Mr Kalyanam says. "For these investments to be successful, Walmart also needs the right kind of culture that can engage with these partners."

The main players in the giant retailer's partnerships from the global tech industry:

In addition to working directly with other tech and retail giants, Walmart also has a history of hiring executives from competitors and complementary businesses where it would like expertise: