A Guide to Walmart’s Ragtag Alliance Against Amazon

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

But Walmart knows it can no longer go it alone. Amazon.com Inc. now captures 49 percent of the U.S. e-commerce market, according to researcher EMarketer Inc., up from 43.5 percent 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 U.S. sales.

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

“It's the classic build-or-buy conundrum,” said 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 personalized 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 U.S.

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 $16 billion to grab a majority stake in Flipkart, the nation's biggest online seller.

But outright acquisitions like Flipkart and Jet.com in the U.S. 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 northwestern Arkansas.

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

Walmart's Worldwide Allies

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

Tencent Holdings (China/India)
Joined alliance in 2018: Walmart adopted Tencent's WeChat mobile payment system in western China, dropping Alibaba's Alipay; Tencent has a minority stake in Indian e-commerce site Flipkart, which Walmart bought in May

Instacart (U.S.)
2018: Sam's Club, Walmart's membership-based warehouse club, inked a deal with Instacart for same-day deliveries

Waymo (U.S.)
2018: The self-driving vehicle unit of Google parent Alphabet is testing a program to shuttle Walmart customers to stores to pick up online grocery orders

Rakuten (Japan)
2018: Walmart will sell Rakuten's Kobo device and e-books, and the companies will work together to revamp the retailer's online grocery business in Japan

Microsoft (U.S./India)
2018: In July, Walmart agreed to use Microsoft's Azure cloud platform across the entire company; Microsoft also holds a stake in Flipkart

Postmates (U.S.)
2018: The delivery company handles grocery orders for Walmart in a handful of cities, such as San Diego and Los Angeles 

Flipkart (India)
2018: Walmart paid $16 billion for a majority stake in India's largest e-commerce site to fend off Amazon, which is spending billions to expand its business there

Google (U.S.)
2017: Walmart customers can link their store accounts to Google's Express shopping service and use voice-activated Google Home devices to buy everything from fresh food to bug spray

Uber (U.S.)
2016: Walmart used Uber's drivers to deliver online grocery orders in four cities; the partnership ended in June

Jet.com (U.S.)
2016: Walmart acquired Jet for $3.3 billion, then appointed its founder, Marc Lore—a proven Amazon fighter—to run its U.S. online business

JD.com (China)
2016: Walmart owns 12 percent of China's second-largest e-commerce site, and its Sam's Club warehouse stores operate on JD.com through linked supply chains

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.

Qualcomm (U.S.)
2018: Walmart's new lead director, former American Airlines CEO Tom Horton, also serves on the board of the chipmaker

Ocado (U.K.)
2018: Simon Belsham, named president of Jet in March, previously worked at the British online grocer

Square (U.S.)
2018: Sarah Friar, CFO of the payment company, joined Walmart's board this year

Rent the Runway (U.S.)
2017: Walmart hired co-founder Jenny Fleiss, who launched shopping-concierge service Jetblack in June

Instagram (U.S.)
2014: CEO and co-founder Kevin Systrom has served on Walmart's board

Yahoo! (U.S.)
2012: Former CEO Marissa Mayer sits on Walmart's board; Scott Doughman, president of Walmart's Hayneedle home-goods site, was previously vice president for global partnerships at Yahoo

Baidu (China)
2004: Walmart Chairman Greg Penner, the grandson-in-law of founder Sam Walton, served on the Chinese search giant's board from 2004 until last year

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To contact the editor responsible for this story: Aaron Rutkoff at arutkoff@bloomberg.net, Anne Riley Moffat

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