Retail giants Walmart and Amazon are in a Godzilla vs. Mothra war

June 19, 2017

By Mathew Flamm, Crain’s New York Business

Two giants are getting bigger, as each seeks to build its business while looking over its shoulder at the other.

Amazon announced today a $13.7 billion deal to acquire Whole Foods—the biggest transaction in the company’s history. The deal will give the Seattle-based e-tailer a vast presence in the brick-and-mortar world while helping it grow its grocery business—and compete with Walmart. Analysts see a chance for Amazon to combine online ordering with in-store pickup and use Whole Foods products to build its grocery-delivery business.

At the same time, Walmart announced it was buying menswear retailer Bonobos of New York for $310 million in cash—a direct attack on Amazon’s retail business as well as on other rivals including Macy’s and Target.

It’s a great move for Bonobos, said Randy Burt, a partner in the consumer and retail practice at consulting firm A.T. Kearney. The 10-year-old company, which started online only and later added stores, gets access to capital and to the talent that came aboard when Walmart bought Hoboken-based last year and made Marc Lore, its co-founder, head of e-commerce operations.

And Bonobos helps Walmart threaten Amazon where it hurts: in apparel sales.

“They get an apparel player that is going to allow them to compete with Amazon,” Burt said. “Apparel is a critical category for Amazon.”

The Bonobos deal is expected to close at the end of the second quarter or the beginning of the third quarter of this fiscal year.

Meanwhile, an analyst said Amazon is not just looking over its shoulder at Walmart with its purchase of Whole Foods, but also is preparing for new rivals, like Lidl, a German supermarket giant that bills itself as a kind of economy-priced Trader Joe’s. The company is expected to open 100 stores on the East Coast by the middle of next year.

“This could be half a defensive move,” said Burt Flickinger, managing director of consulting firm Strategic Resource Group.

Flickinger also said Amazon has struggled in its efforts to build a grocery-delivery business with AmazonFresh—which could bode well for FreshDirect.

“Amazon hasn’t fully adjusted to the detail of food retail,” he said, citing consumer complaints about crushed groceries and other problems with orders.

“It’s an interesting combination,” he added of how Whole Foods could add to AmazonFresh. “But it’s not an uncontested slam dunk.”

A.T. Kearney’s Burt said FreshDirect’s superior service is not a competitive advantage that will survive in the long run. But he said online grocery sales is a potentially huge category that is still in its early stages.

FreshDirect, which is completing a distribution center in the Bronx with the help of city subsidies, could get caught in the crosshairs. Amazon poses a “real threat” to FreshDirect, Burt said, adding, “There’s room for one more player.”

FreshDirect had sales of around $600 million in 2016, according to IBISWorld. It estimated that AmazonFresh had $246 million in revenue that year.