Amazon is decimating many American retailers, but one bricks and mortar chain is fighting back strongly and showing to Australian retailers that the e-commerce behemoth can be challenged.
Wal-Mart Stores, the world's largest retailer, is once again thriving after initially struggling to fend off Amazon.
Wal-Mart's turnaround, aided by its US business head and former Woolworths executive in Australia, Greg Foran, may provide clues for Australian retailers bracing for new fierce competition from Amazon.
Investment in internet sales platforms, retraining staff, paying higher wages, revamping the layout of stores and shutting unproductive shops helped lift Wal-Mart shares to a record high this month. Wal-Mart's share price has surged 42 per cent this year.
Wal-Mart is "back in the game", said Steve Odland, the former chief executive of America's Office Depot and AutoZone.
"Look at what Wal-Mart has done to counteract Amazon. That's the formula," Mr Odland said.
Wal-Mart thrives against digital tide
In contrast, American department stores such as Sears, Macy's, J.C. Penney, Kmart, Target and Kohl's are struggling to stay afloat against Amazon. US big box retailers have shut numerous shops, axed thousands of employees and suffered big share price declines.
Mr Odland warned Australian stores that couldn't make the transition against Amazon that they would be in financial trouble.
"Good luck to the other retailers," he said.
"Monetise your real estate and get out while you can."
Wal-Mart's online sales in the US jumped 50 per cent in the September quarter compared to a year earlier, after the retailer acquired a range of e-commerce businesses such as Jet.com for $US3 billion ($3.9 billion) and invested heavily in its own digital sales websites.
Wal-Mart's e-commerce business is not yet profitable, but is on track to be by 2020.
Online groceries hook customers
Mr Foran, a New Zealander who was passed over for the top job at Woolworths in 2011, said Wal-Mart's expanded online grocery service in 1100 stores had attracted new customers.
"We look forward to expanding this popular offering to another 1000 locations next year," he told investors on a November 16 conference call.
Customers order their goods online and on the same day have the groceries loaded directly into their cars at Wal-Mart car parks – saving time and making it easier for older consumers or parents with young children.
"Adding the food keeps the customer coming to you often and picking up other stuff," said CFRA retail analyst Joseph Agnese.
Wal-Mart is also competing aggressively on price to capture market share for the long term, a similar move to Amazon.
The lower pricing strategy has shrunk Wal-Mart's profit margins on products.
Wal-Mart's total revenue grew 4.2 per cent to $US123.2 billion in the third quarter and operating profit fell 6.9 per cent to $US4.8 billion.
One-stop shop
The retail giant has more than tripled the number of items available for purchase online to 70 million, though that is still well below more than 400 million products offered by Amazon.
CFRA's Mr Agnese said Wal-Mart was trying to be a "one-stop shop" for consumers.
"Any customer who is trying to buy anything will think of Wal-Mart as an option," he said.
"If you have a limited selection, customers are not going to come to your site."
Wal-Mart has unique advantages compared to other bricks and mortar retailers.
It has more than 5000 stores in the US and operates 11,700 retail locations in 28 countries. Wal-Mart's scale, strong balance sheet and backing of founding shareholders in the billionaire Walton family allow it to invest for the long term to compete against Amazon.
"Wal-Mart is in a much better position to deal with the Amazon threat," Mr Agnese said.
"The problem with other retailers is they have a limited selection."
Amazon's disruption initially hit Wal-Mart hard. In the 2015 financial year Wal-Mart posted its first annual sales decline in 35 years and announced the closure of nearly 300 stores around the world.
Buffett misses turnaround
The company's recent resurgence was not easy to predict.
Investment doyen Warren Buffett's Berkshire Hathaway sold most of its 12-year investment in the retailer last year – before Wal-Mart's share price rebound.
Wal-Mart is investing in its people to deliver better customer service.
Wal-Mart announced in 2015 a two-year $US2.7 billion investment in its workforce, through training programs and pay rises in order to retain and attract staff.
Wal-Mart staff now earn at least $US10 an hour, which is considerably lower than Australian retail workers, but still higher than the US minimum wage of $US7.25. Wal-Mart's average full-time hourly wage is $US13.38 an hour.
The Wal-Mart Academy, offering two to six-week training courses, has graduated more than 52,000 staff since its opened in 2016.
The big box retailer plans to hire about 2000 "category specialists" to monitor the firm's website and rewrite item descriptions.
Wal-Mart has also spent heavily on its supply chain logistics and inventory management. Inventory levels at its warehouses have decreased for seven straight quarters.
"At the same time we're doing a pretty good job with in-stock levels," Mr Foran said.
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