Walmart V. Amazon: Advertising, Inflation, And The Battle For ECommerce Brands

Two trends have emerged from big retailers’ Q4 earnings calls over the last several weeks: 1) inflation is weakening consumer demand; and 2) their advertising units are growing like crazy. This was especially true for Amazon and Walmart, who both had soft 2023 outlooks for their retail businesses while also showing highly profitable and fast-growing ad units.

As Walmart races to court 3P sellers to join its marketplace – expanding its assortment of products and convincing more shoppers to shop there – these two trends might be shifting the battle in its favor.

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 discussed key findings from Teikametrics’ Walmart Q4 2022 Benchmark Report and its Amazon Q4 2022 Benchmark Report to understand advertising trends for each marketplace and how those might impact the way eCommerce brands think about selling on each.

Gary Drenik: Before we look at earnings, advertising, and inflation, can you tell us about the evolution of Walmart’s marketplace and how the battle between Amazon and Walmart has unfolded over time?

Alasdair McLean-Foreman: Walmart had over 2,000 stores by the time Amazon launched in 1996, but it was late to the eCommerce party, only launching its own marketplace in 2009.

It wasn’t until it acquired Jet.com in 2016 that it made real waves in eCommerce, and around the time of the pandemic it started meaningfully investing in a flywheel similar to Amazon’s.

In 2020, it launched Walmart+, its subscription service somewhat similar to Prime, but with in-store and gas benefits as well. 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 up its marketplace to international sellers. They really started courting new eCommerce sellers, attending popular industry conferences that have traditionally been dominated by Amazon.

Drenik: So explain the considerations for eCommerce brands about selling on each marketplace. Why might 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 path forward. It’s not one or the other; it’s both.

But each marketplace offers different value props for sellers.

There’s no getting around the size and scale of Amazon’s marketplace. Amazon’s Q4 eCommerce sales were more than Walmart’s eCommerce sales for the entire year ($64.53B v. $49.56B). According to a recent Prosper Insights & Analytics consumer survey, 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 share grew.

You see it in their earning’s report. Walmart’s eCommerce sales are growing faster than Amazon’s. In Q4, Walmart’s eCommerce sales grew 17% while Amazon’s fell 2%.

Selling on Walmart’s marketplace also offers the possibility of being invited to sell in Walmart stores. And when we take brick-and-mortar sales into consideration, Walmart is a bigger business overall, so that is a very attractive proposition to most brands.

Meanwhile, the cost of advertising on Walmart is similarly attractive. According to our Walmart Q4 2022 Benchmark Report, the average cost per click (CPC) for ads on Walmart’s marketplace was $0.38, a decrease of 26% year-over-year. Meanwhile, our Amazon Q4 2022 Benchmark Report showed that the average CPC on Amazon was $0.85, increasing slightly from the year before.

A major driver of the lower CPCs is less competition from other brands. Walmart has around 150,000 sellers as of 2022, while Amazon eclipsed 2M active sellers the same year. Walmart wants to grow the assortment of products on its marketplace, and so it's going after new sellers aggressively – it even recently announced new seller savings to convince them to join.

Selling on Walmart is an investment we've seen make a significant impact for our customers in 2022 moving into 2023. On Walmart today, you can still find niches that aren’t as crowded, advertise for relatively little, and capitalize on the growth of a marketplace that’s starting to look a lot more like Amazon did a few years ago.

Drenik: As you were talking about advertising, I was thinking about how much advertising and marketing has changed over the last few years with 3P cookies being phased out. How have Amazon and Walmart embraced new forms of advertising, and how is that reframing their battle for eCommerce brands?

McLean-Foreman: The hot story in our space over the last few quarters has been the rise of Retail Media Networks (RMN). According to the World Advertising Research Center, retail media ad spend is forecasted to reach $121.9B globally in 2023, up 10.1% from last year.

They’re essentially digital advertising built within a retailer’s marketplace. It's so much more than just sponsored ads at the top of Amazon searches – in addition to offering in-store digital advertising opportunities, RMN offers key 1st party data about that retailer’s customers. In a cookieless world, they represent the future of personalized marketing.

Amazon’s ads division was one of its fastest growing business units in Q4, nearly keeping pace with AWS’ growth rate at 19%. Walmart Connect, its RMN, grew even faster at 41% in the US.

Given the massive online and in-store audiences both companies have, their battle is shifting from simply selling products to consumers to selling ad space and customer insights to brands.

Drenik: Very interesting. Let’s pivot a little by talking about inflation. We’re still at 6.41%. How is this impacting both companies? What do you think that means for consumers and sellers that want to reach those consumers?

McLean-Foreman: What’s interesting about inflation when it comes to Amazon and Walmart is that they are both value retailers. They offer low prices and convenience. Some experts have even posited that Amazon, by empowering millions of sellers to source and sell cheap products globally, became a macroeconomic force that kept inflation down in the 2010s.

But now inflation is here, and it’s impacting each business differently.

While Amazon’s retail business saw a small decline, Walmart’s has been up, but not with who you might expect.

Walmart has traditionally been associated with lower-income shoppers, but it’s been making real gains with higher-income shoppers. During the Q4 earnings call, Walmart CEO Doug McMillon elaborated: "We're gaining share across income cohorts, including at the higher end which made up nearly half of the gains we saw in the U.S. again this quarter."

This plays out in the data. According to the Prosper Insights & Analytics monthly consumer survey, the percentage of high-income households ($150k+) who are members of Walmart+ has been increasing steadily, from 12.7% in February of 2022 to 28% in February of 2023.

Walmart+ offers these shoppers unique savings that Amazon either can’t or can’t to the same degree, such as gas and groceries, two areas that are particularly impacted by inflation.

The question is whether the free shipping and other eCommerce savings that come with Walmart+ can entice these shoppers into becoming longer-term eCommerce customers as well.

Walmart did give a pretty soft outlook for 2023, but they might have reasons to believe that their customers will continue to spend relative to their competitors. For example, Prosper’s survey showed that Walmart+ shoppers are significantly less likely to cut back spending as a result of the state of the economy. Nearly 50% of Prime members are planning to spend less in 2023, while only 38% of Walmart+ shoppers plan to do the same.

Drenik: So, what does this mean for brands?

McLean-Foreman: Well, the battle is shifting. Walmart has the infrastructure to capture share in an inflationary environment and they’re getting new, more affluent customers.

Let’s be clear. Walmart won’t overtake Amazon anytime soon, but there are clear trends that are making it an attractive place for brands to invest into over the next few years. Some brands might want to bet that Walmart’s ability to win share in essential categories (gas, groceries, etc.) will translate into longer term eCommerce growth.

And if they do, advertising on Walmart, though cheaper, won’t be the way it was on Amazon years ago when you could just launch a product without an ads strategy. Both companies are betting on advertising becoming growth and profit centers, and advertising will become a necessity.

Drenik: Very interesting. Thanks, Alasdair. It was a pleasure speaking with you!

McLean-Foreman: Likewise, thanks for having me!