Whole Paycheck Tracker® Introduction Introduction

September 2020

WHOLE

PAYCHECKTRACKER® Battle For The Digital-First Consumer

WHO’S WINNING BY THE NUMBERS

WHOLE

PAYCHECKTRACKER® Battle For The Digital-First Consumer

Introduction 04

Amazon vs. Walmart, the Overview 08

Strengths and Weaknesses 10

The Battlegrounds 12

AMAZON NUDGES WALMART IN BATTLE FOR THE DIGITAL CONSUMER

he second quarter of 2020 pandemic. They also took care of their Other longer-term moves out of Seattle presence in furniture, intimate wear, and was not a time for the hard own workforces with bonuses and included the debut of the company’s groceries. The company is expected to T sell. It was the height of the a greater focus on safety. And in the first Amazon Fresh grocery store, pay a combined $190 million for Urban pandemic, with hundreds of thousands process, they both fought through complete with smart shopping carts Ladder (online furniture) and Zivame contracting a still-unconquered virus Q2 with earnings that exceeded and more stirrings about the company’s (innerwear).” on the way to 183,000 deaths in the expectations – and for Walmart, a spike move into high fashion. It also made Walmart also played the long game in U.S. by Sept. 1. Entire cities and even in eCommerce activity and revenue. some moves in India, launching the Q2. Like Amazon, its biggest (potential) states were locked down, and retailing territory’s second annual Prime Day Amid the pandemic, the quarter was disruption came outside of Q2 when it was split between “essential” and “non- with (guess what) higher-than-expected marked not so much by competition joined Microsoft’s bid for TikTok. Unlike essential” status. Americans were less results. While Prime Day might seem for the whole paycheck in the short Amazon’s entry into wearables, the concerned with how they were spending like a short-term revenue grab, it’s term, but by various positioning moves Bentonville crew’s entry into social their paychecks as they were concerned not. Amazon will soon have a major to get the whole paycheck in the longer media and gaming is a bit harder to with actually getting one. competitor on the subcontinent in the term. No event was bigger than the see. It doesn’t tie directly to long-term form of Indian billionaire and retailing It was under these conditions that one announced recently by Amazon revenue as clearly as Halo does. But it mogul Mukesh Ambani. Walmart and Amazon – as well as their to enter the wearables, fitness and is an ambitious long-term move and competitors – operated in Q2. Yes, it device markets. With Halo, which is a “Citing sources familiar with the matter, shows that Walmart is thinking more was marked by aggressive moves from Fitbit-type wrist device that measures Indian financial daily Mint reports that digitally about its future. both companies to get more than their everything from body mass to sleep Reliance Retail is about to go on a “The way TikTok has integrated fair share of the $65,960 the average patterns to voice tones, Amazon is buying spree to bolster its eCommerce eCommerce and advertising capabilities American spends each year. But both opening a new revenue stream and business in India,” says The Motley in other markets is a clear benefit to companies donated to various causes joining the move toward connected Fool. “The potential acquisitions are creators and users in those markets,” to help American workers during the fitness in a big way. expected to strengthen Reliance’s online said Walmart in a statement. “We

TIKTOK IS AN AMBITIOUS LONG-TERM PLAY WHOLE THAT SHOWS WALMART IS THINKING MORE DIGITALLY ABOUT ITS FUTURE. PAYCHTRACKER® ECK Battle For The Digital-First Consumer

believe a potential relationship with eCommerce brands, all in the interest TikTok U.S. in partnership with Microsoft of eventually losing “omnichannel” and could add this key functionality and simply going with “retailing.” provide Walmart with an important way And as much as Q2 was a time of for us to reach and serve omnichannel happenings, it was also a period of customers as well as grow our third- time in which one side set a date for a party marketplace and advertising major initiative and one didn’t. Amazon businesses. We are confident that a still held its date for Prime Day close to Walmart and Microsoft partnership the vest. Walmart finally announced its would meet both the expectations of launch date for Walmart+, which will be U.S. TikTok users while satisfying the Sept. 15. concerns of U.S. government regulators.” The following report will delve into Note the word “omnichannel” in the Instacart’s effect on Walmart’s grocery previous statement, because Walmart plans in the hottest battleground also used Q2 to break down any between the two companies, as well remaining barriers between its online as overall spending share of the two and offline divisions. It combined job companies as they head into the critical functions in Bentonville early in the end of the year in their quest quarter and shuttered the ill-fated Jet. to dominate the whole paycheck. com, which it bought for $3 billion in 2016. It also shut down two other minor

y the numbers, both Walmart and Amazon exceeded During the company’s post- TRACKER OVERVIEW announcement earnings call, all expectations. Because the Whole Paycheck Tracker As stated earlier, Amazon and Walmart executives said that the quarter tried to find a place within the business is a comparison and a gauge of competition, the edge benefited from spending stemming dynamics of the pandemic. And those B from government stimulus packages. on earnings has to go to someone, and both checked in with dynamics were extraordinary during In addition to grocery, strong amazing performances. the month of April, for example, when performances came from electronics the assignment of essential versus and connected home products. Specific nonessential retail made Walmart, Amazon gets the first look. The demand, despite the strong operating grocery numbers were not called out, Target and grocery retailers the only company almost doubled its revenue leverage in Q2. As we move toward other than a growth rate in the high game in town for essential goods. And and profit numbers while spending peak in the second half of the year, single digits. if a consumer could wait long enough more than $9 billion on capital we will ramp up our space needs even The company raised some concerns through possible shipping delays, the improvement projects. further, and we’ll be adding significant regarding Q3. Back-to-school sales, other essential retailer that was open fulfillment center and transportation Among those numbers: Operating cash according to Walmart, are off to a slow was Amazon. capacity.” flow increased 42 percent to $51.2 start. Combine this with a possible Gross sales in the U.S. via Amazon billion compared with $36 billion for Q2 Walmart’s numbers showed eCommerce absence of an additional stimulus have increased from $86 billion in 2014 2019. Net sales increased 40 percent growth and top-line increases as well. package, and the company could have to $339 billion in 2019. Judging by its to $88.9 billion compared with $63.4 The retailer saw a U.S. comp-store a hard time reaching the heights it has performance in Q1 ($77.1 billion gross billion in the second quarter of 2019. sales increase of 9.3 percent over achieved during the pandemic so far. sales) and Q2 ($105 billion), it’s possible Operating income increased to $5.8 Q2 2019 and a 97 percent increase “Back-to-school is just one component that Amazon could ring up over $400 billion in the second quarter compared in eCommerce. The eCommerce of the quarter,” CEO Doug McMillon billion for 2020. Why? Because the with $3.1 billion, and net income performance comes on the heels of said. “And we’ll have to sort out how pandemic is still a limiting factor for increased to $5.2 billion compared to a 74 percent jump in Q1. Digital sales customers want to shop as we go, consumers, and even though they have $2.6 billion. Video hours on Amazon rose from 180 basis points in Q1 to 600 but we think our inventory is well- started to return to physical stores, the Prime doubled. Online grocery sales basis points in Q2. positioned. And we’ll just react location vast majority of U.S. citizens will not tripled. While grocery wasn’t broken out in by location. I don’t think we have a revisit pre-pandemic shopping habits On the earnings call, CFO Brian the company’s financials, CEO Doug lot of liability exposure there. The until a vaccine is widely available. That Olsavsky pointed out that Q2 2020’s McMillon called it out as a contributing sales exposure will be mixed as we go means consumers will still look to numbers topped Q4 2020 –and that Q3 factor to the comp sales bounce, through the quarter and manage other spend a portion of their paychecks with would be even bigger. “As a reminder, Q2 with an average ticket size that grew parts of our business.” Amazon before they consider going to a is typically our largest-volume quarter 27 percent over 2019. If the grocery physical store, unless it’s grocery. for the retail business. That’s not the category continues on its current case this year,” he said. “What that trajectory, it will add $8 billion in sales means is that we can flex into space to the company’s bottom line by the normally used for second-half peak end of the year.

Only about $4 billion of Amazon’s Q2 dropped to 44.4 percent in Q2 2020, When it comes to consumer spending, Amazon took 9.0 percent of consumer revenue took place outside of the which is still a number any other Walmart accounts for 3.4 percent retail spend and Walmart increased to Amazon.com domain, meaning Whole company would give their whole overall and 10.2 percent for retail. That’s 10.2 percent. Amazon has been closing Foods, Amazon Fresh and Amazon paychecks for. It even dropped from Q2 up from 9.6 percent in Q1 2020, but the gap with Walmart over the past Go. It’s interesting that the cumulative 2019 (46.6 percent). But the numbers roughly even since 2016. Bottom line: In five years, and trends suggest they will annual revenue growth rate for the are misleading. The U.S. government 2019, Amazon accounted for 6.8 percent continue to reduce the gap in the next Seattle-based crew since 2014 is 31.5 Census department put the eCommerce of total retail spend, and Walmart few years as the battle for the whole percent for total sales and 30.1 percent increase from Q1 2020 to Q2 at 44 grabbed 8.9 percent. 2020 has been paycheck pulls to about even. for eCommerce. That difference comes percent – a total number of $211 billion. better for Amazon so far. For Q2 2020 from the relatively nascent nature of For Amazon to drop only 7 percent in its offline business as well as stiffer total eCommerce share with that kind competition from other eCommerce of overall increase is actually quite an Figure 1: Amazon Share of Total Spending players. achievement. 9%

When it comes to Amazon’s share of Now on to Walmart. Considering the 7% consumer spending, things get a bit pandemic and its hybrid online-offline 5% more complex. Amazon accounted for model, its results were more subtly 2% 3.2 percent of total consumer spending impressive. Its gross sales in the U.S. 0% in Q2 (across all categories, including (online and physical) jumped about $7 2014 2015 2016 2017 2018 2019 Q1 2020* Q2 2020* retail) and 9 percent of total retail billion from Q1 2020 to Q2 – from $103.9 Share of Consumer Retail Spending spending. Check that against Q1 (7.7 billion to $110.5 billion However, that’s Share of Total Consumer Spending Source: PYMNTS.com percent of total retail) and the results roughly similar to 2019, when it jumped are significant, considering Amazon’s from $95.1 billion (Q1) to $101.8 billion. revenue base. Now compare it to Q2 That correlates to the relatively flat 2019 and the 6.4 percent number shows in-store comps the company reported Figure 2: Walmart Share of Total Spending that Amazon has gained 2.6 percentage for Q2 this year, which was impressive 11% points in a year. when considering the pandemic. eCommerce sales jumped from $9.3 8% Now go back to total share of billion in Q1 to $11.2 billion in Q2, almost eCommerce – again, the numbers 6% double the $5.7 billion in Q2 2019. That bear some investigation beyond the 3% $11.2 billion for eCommerce represented surface. Amazon touched just north of 10.2 percent of total company sales, 0% 50 percent for Q1 2020 in eCommerce 2014 2015 2016 2017 2018 2019 1Q2020 2Q2020 more than double the 4.7 percent market share (51.2 percent). That reported at the end of 2018. Share of Consumer Retail Spending Share of Total Consumer Spending Source: PYMNTS.com

STRENGTHS AND WEAKNESSES Figure 3: Share Of Total Electronics and Appliance 26.0% The details of the purchase dynamics during the pandemic can be seen 19.5% through individual categories, and here 13.0% Amazon has a much stronger story

than Walmart. Excluding grocery (which 6.5% will be dealt with in the Battleground 0.0% section), Amazon had several category 2014 2015 2016 2017 2018 2019 Q1 2020* Q2 2020* breakthroughs, while Walmart had only Walmart Amazon Source: PYMNTS.com one. Note: Grocery will be defined as two categories: food and beverage plus

health and personal care. Figure 4: Share of Total Clothing and Apparel 18.0% Outside of those two, Walmart failed in

more categories than it succeeded. The 13.5% pandemic was notable for its spikes in exercise equipment and sporting 9.0% goods, as can be seen in quarterly 4.5% earnings from Peloton, Dick’s Sporting Goods, Hibbett Sports, Target and other 0.0% 2014 2015 2016 2017 2018 2019 Q1 2020* Q2 2020* retailers. But Walmart sales in the Walmart Amazon category showed minimal bounce, from Source: PYMNTS.com $3.5 billion in Q1 2020 to $3.7 billion in Q2. By contrast, Amazon added almost Figure 5: Share Sporting Goods, Hobby, Music, And Books $2 billion in sporting goods sales from 18.0% $16.5 billion in Q1 to $19.4 billion in

Q2. Why the difference? Most likely 13.5% in selection and ticket price. For any consumer buying an exercise bike, for 9.0% example, Amazon has choices from 4.5% obscure manufacturers 0.0% 2014 2015 2016 2017 2018 2019 Q1 2020* Q2 2020* Walmart Amazon Source: PYMNTS.com

total net revenue increased $2.0 billion this more than 13 percent of the U.S. to $4.3 billion, up 83.7 percent year over consumer’s paycheck – where Amazon year. and Walmart will go to war for the balance of 2020 and into 2021. Battleground: Grocery And strictly by the numbers, it makes By the numbers, retail takes 30.8 sense. Even if grocery is defined by food percent of the U.S. paycheck. Eight and beverage only, it’s still the largest percent of that goes to food and retail category for consumer spend. Put beverage, while 5.3 percent goes to it together with health and personal health and personal care. Put them care, and no other retail spend category together (13.3 percent) and you roughly at below $500 up to $2,000 NordicTrack in Q2 for 17.8 percent of total consumer even comes close (apparel is at 3.4 have the grocery category. It is here – machines. Walmart’s selections are spend. With Amazon holding a summer percent). As Amazon and Walmart lean primarily under $500. The consumer apparel sale in June and pushing spending share for sporting goods was to enter the high-fashion category, 15.7 percent for Q2 at Amazon and Walmart will need a fairly dramatic Figure 6: Share of Total Food And Beverage move to shore up its apparel share of 20.0% 3.7 percent at Walmart for what was consumer spend. arguably the hottest nonessential 15.0% product category of the pandemic. The other category worth noting is 10.0% furniture. Amazon caught up to Walmart The two retail powers are also parting on total spend percentage in 2019, and ways on two other important categories: 5.0% continues to pull ahead. For Q2 they electronics and appliances. Amazon took 14.7 percent (Amazon) and 0.0% rose from 22.6 percent of total spend 2014 2015 2016 2017 2018 2019 Q1 2020* Q2 2020* Walmart Amazon in Q1 to 24.4 percent in Q2; Walmart 11.5 percent (Walmart). But Amazon Source: PYMNTS.com dropped from 6.2 percent in Q1 to continues to pull more dollars in the 6.0 percent in Q2. Walmart’s biggest category. At the end of Q2 2019, it Figure 7: Share of Total Health and Personal Care percentage sales growth outside of logged $6.3 billion in sales, jumping 7.0% grocery came in apparel. It added more to $9.3 billion for Q2. Walmart should than $500 million to its quarterly tally in technically have an advantage with 5.3% this category, jumping from $9.0 to $9.5 physical stores, but its category take 3.5% billion and taking 10.5 percent of spend. was $7 billion for Q2 last year and $7.3

But Amazon still outperformed in this billion this year. This could be good 1.8% category on a total spend basis, going news for Wayfair, which is holding onto from $13.8 billion in Q1 to $16.2 billion its market share. Its Q2 revenue showed 0.0% 2014 2015 2016 2017 2018 2019 Q1 2020* Q2 2020* Walmart Amazon Source: PYMNTS.com

in on the biggest category relatively broken out in the company’s quarterly late in the game, the battle for 2021 will earnings. However, food and beverage expand beyond the two whole paycheck is broken out. It barely moved from Q2 contestants and include aggressive 2019 to 2020. It’s no coincidence that moves from Target as it comes in, and Amazon has been so aggressive in the PYMNTS.com is where the best minds from Kroger and other supermarkets as category – and it begs the question as and the best content meet on the they defend their turf. to whether Amazon will acquire another web to learn about “What’s Next” in chain, or convert a mall-based retailer Walmart and Amazon have put so payments and commerce. Our interactive like JCPenney to Whole Foods locations. platform is reinventing the way in much emphasis on grocery – both which companies in payments share online, offline and home delivery – Walmart, on the other hand, has put relevant information about the initiatives that the current snapshot will change some big grocery numbers on the board, that shape the future of this dynamic dramatically. Still, that snapshot shows which should only increase as Walmart+ sector and make news. Our data and a complicated base from which they is rolled out and the partnership with analytics team includes economists, both work. Instacart is deployed. Its food and data scientists and industry analysts who beverage category went from $58.7 work with companies to measure and Amazon is more complicated due billion in Q1 2020 to $62 billion in Q2. quantify the innovation that to its four-pronged approach to the is at the cutting edge of Compare it to Q2 2019 and the numbers category: Amazon.com, Whole Foods, this new world. are even more impressive, jumping Amazon Fresh and Amazon Go. It was from $56.7 billion in Q2 2019. That’s not a completely successful formula a $5 billion difference in the biggest in Q2. Amazon’s physical store revenue consumer retail category. Compare it (mainly Whole Foods) dropped almost to Q2 2019 and the numbers are even 13 percent in Q2 2020 compared to Q2 more impressive, jumping from $56.7 2019. Compared to Q1 2020, the drop billion in Q2 2019. That’s a $5 billion was even higher at 18.7 percent. This difference in the biggest consumer could be an indicator of consumers retail category. being too COVID-concerned to visit physical stores. It is not a line item

Table 1 shows the drop in Amazon’s physical stores, Whole Foods, Amazon Fresh and Amazon Go

Source: PYMNTS.com

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