Contrary to what many have assumed, Amazon is not taking over the world, said Kurt Jetta, PhD, founder of the research firm. The sales surge was driven rather by a strong performance in the online sales arms of traditional brick and mortar retailers, with Walmart as the outstanding example.
Walmart leads surge of brick and mortar retailers
The brick and mortar online retailers outpaced Amazon and other pure play outlets in growth and gained almost 19 percentage points in online transaction share, according to a report released yesterday by the firm. Brick and mortar stores sales of VMS grew three percent. TABS Analytics estimates the annual US VMS market grew 6% in 2016 and now stands at $13.5 billion in sales annually.
“This is really a breakout year for Walmart’s online sales of VMS which have helped propel the online sales for the VMS category to a ten-year high of 17% of all sales,” said Jetta. “Walmart also made substantial online gains in share in baby products in our study earlier this year which is corroborated by its recent earnings report which showed its online sales rising 63% in the company’s first fiscal quarter.”
During a webinar presentation of the results, Jetta was asked how Walmart did it. On that, he said he could only speculate, but he believed it might have a lot to do with Walmart’s acquisition of jet.com Inc in 2016.
“They may have gotten much more aggressive as far as paid search is concerned,” Jetta told the webinar audience.
Online platform acquisition
“As far as Jet itself concerned, they only aspire to asterisk status. They’re tiny. But maybe these people really know e commerce and they just needed a bigger platform,” he said.
Walmart acquired Jet in August, so the answer to the question of the 2016 sales surge is likely a combination of both. Walmart paid $3 billion to acquire Jet. At the time, Walmart CEO Doug McMillon said: “We’re looking for ways to lower prices, broaden our assortment and offer the simplest, easiest shopping experience because that’s what our customers want. We believe the acquisition of Jet accelerates our progress across these priorities. Walmart.com will grow faster, the seamless shopping experience we’re pursuing will happen quicker.”
Jetta said he has cautioned brands in the past against viewing online sales as a panacea. In low margin categories such as grocery, where the brick and mortar shopper typically subsidizes the packaging and transport of the goods by showing up at the store online costs can creep up unawares. The issue with supplements, which often operate at higher margins and whose packaging for shipment can often be automated, the issue is less clear. Walmart said in a statement at the time of the Jet acquisition that is was particularly interested in Jet’s ability to find and eliminate hidden costs in the supply chain for online sales.
Among the key findings in the TABS report were:
- Online sales are strong and growing. Online purchasing for VMS grew dramatically, increasing 20% over 2016, led by significant increases by brick-and-mortar retailers’ online sales, especially Walmart.com. Amazon and Walmart are the number one and number two online retailers for VMS with Amazon accounting for an estimated 4.5% and Walmart.com accounting for an estimated 1.6% of all market transactions in the category.
- VMS category shows signs of maturity. Over the past several years, growth has been modest and no new types of VMS products have exhibited sustained growth.
- VMS volume and dollar sales grow. Dollar sales for the category grew six percent to $13.5 billion.
- Heavy buying gains momentum. Heavy buying increases (consumers purchasing 3 or more types) were driven by: gains from very heavy buyers (6 or more types purchased), younger buyers (ages 18-54) and women.
- Income not a deciding factor. Unlike in the baby products market and other CPG categories where higher income influences purchasing, income doesn’t have a material impact on VMS purchases, except in the lowest income group.