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Alibaba And Amazon.com Want To Be Like Wal-Mart. What Does It Mean For Margins?

This article is more than 9 years old.

Alibaba Group (NYSE:BABA) wants to be like America’s largest retailer, Wal-Mart Stores , Inc.— in size, that is. Amazon.com wants to be like Wal-Mart—in physical store presence that is.

In a big shift from Amazon.com’s long-standing business model--which has relied on on-line sales and remote warehouses to compete effectively against major discount retailers like Wal-Mart—the company is to open its first physical store on 34th St in Manhattan, across from the Empire State Building, according to a CNBC report.

Though the store will function as a small warehouse and showroom rather than a large retail store, Amazon’s move into physical retail space represents a convergence between on-line and physical retail. In the last two years,Wal-Mart has been expanding into the on line space by acquiring online search technologies and building warehouses.

In 2013, for instance, Wal-Mart acquired @WalmartLabs, an e-commerce technology arm, and acquired a number of start-ups — Torbit, a cloud-based website accelerator service; Inkiru, a predictive intelligence platform; OneOps, a cloud based automation technology; Tasty Labs; and recently Adchemy, a search engine marketer.

There are signs that Wal-Mart’s online strategy has been working. The company scored a big win against Amazon.com, with online sales growth outpacing the sales of Amazon.com for the period ended Dec.31.

Still, Wal-Mart has a long way to go before catching up with Amazon, which remains the online leader, beating Wal-Mart by 7-1.

Nonetheless, the merging of on-line and physical retailing is changing the rules of the game in the two industries: Bundling physical with on-line retailing seems to have certain advantages over plain physical retailing or plain on-line retailing.

Alibaba versus Amazon.com AMZN -1.95% and Wal-Mart Stores WMT -0.44%

Company   Alibaba Amazon.com  Wal-Mart
Revenue (ttm)    9.36B   81.76  480.48
Qtrly Revenue Growth (yoy)   46.30%   23.20  2.80
Qtrly Earnings Growth (yoy)   179.10%    –  0.60
Operating Margins   48.10%   0.22  5.53
Return on Assets (ttm)   1.14  8.21

Source: finance.yahoo.com

At the same time, this new business model is expected to shave Amazon’s and Alibaba’s operating margins—a big problem particularly for Amazon.com that has thin margins to begin with; and a big disappointment for the momentum crowd that has been chasing after the stock.