Amazon and Walmart end up in the same place

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Amazon and Walmart end up in the same place
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They have returned 9% a year each over the past five years, less than the S&P 500 and smaller rivals like Costco.

Imagine that five years ago the retailers Amazon and Walmart were put to compete. Would anyone have thought that they would end up tied? That’s more or less what’s happened through Thursday, when Amazon released its fourth-quarter results. But just because they’ve held off doesn’t mean others haven’t closed the gap.

Amazon said its revenue rose 9% in the fourth quarter compared with the same quarter a year earlier, to $149 billion, mostly as the company’s $1 trillion cloud division, Amazon Web Services, increased its sales by a fifth. Retail revenues also grew, but this business posted losses for the year due to rising costs. For its part, Walmart, worth 400,000 million, will present its results at the end of this month. In a sense, they’re headed in the same direction: Amazon continues to encroach on real retail, including through its ownership of the upscale Whole Foods Market supermarket chain. And Walmart is getting deeper into digital sales.

Even though technology is eating up the world, both the old-school retailer and the new-age upstart have done more or less the same. Including dividends, Walmart and Amazon stocks have each returned 9% a year for the past five years. And in the coming months, Walmart could take the lead, because the inflationary environment is playing in its favor, that is, its pricing power to customers and suppliers. In the third quarter of last year, Walmart’s gross margin fell by much less than a basket of 14 consumer goods companies tracked by Breakingviews.

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As Amazon’s retail business and Walmart’s converge, where does that leave their smaller rivals? The answer can also be surprising. Not only have the two titans underperformed the S&P 500 Index in five years, but Costco and Kroger stocks have outperformed them as well. That marks a game changer for Amazon, whose shares have easily outperformed rivals in the previous five years. While the giants chip away at each other, there is still room for smaller contenders to thrive.