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Will WalMart End Up Crushing Amazon?

NEW YORK (TheStreet) -- In Tuesday's Best Buy: Dead and Dangerous Money, I quoted something TheStreet's retail savant Brian Sozzi brought up in a recent Real Money article:

We are witnessing something very, very interesting at Best Buy (BBY - Get Report) that could be used as a template for other retailers that have implemented ship-from-store capabilities for online orders ...
Ship-from-store is shaping up to be a formidable threat to (AMZN - Get Report), as large-box retailers clearly outnumber the online giant in the number of distribution centers -- whoops, I mean retail stores.

I expanded on that in my Tuesday piece, but wanted to address it -- a bit more objectively -- here.

Granted, I'm a geek about this type of thing, but it is a pretty darn fascinating dynamic. The notion of physical retailers constructing all of this infrastructure for one function (traditional shopping) only to wind up using it, increasingly, for an until now unanticipated purpose (fulfillment of online orders). As the process (and real estate) shakes itself out, you have to question the veracity of the "success" some big box names report. There's no doubt that sales and, in some cases, an entire strategy simply fell into their collective lap.

Just like Facebook (FB) missed mobile, physical retailers missed online. Now they're playing catch up. But they're not as nimble as Facebook, therefore transition happens more slowly in retail than social media. And it's certainly less reliable. Facebook's playing in a new space, amicable to change. Retail, even amidst Amazon's disruption, remains far more entrenched. But it is what it is; we (or I) can lament what physical retail did wrong all day long. Now they're here pushing online and something, at some point, has got to give.

With that in mind, the important question to ask is Will the emergence of online-focused brick and mortar retailers coalesce to put the hurt on Amazon?

I'm in the early stages of thinking about this -- it's another storyline I want to flesh out with your help in the comments and on Twitter over time. For now, we can begin to inform this developing narrative with something TheStreet's Laurie Kulikowski wrote earlier this month -- How WalMart is Eyeing Silicon Valley:

WalMart (WMT - Get Report) says it's building an Internet tech company within the world's largest retailer ...
Walmart's online sales growth surpassed Amazon's for the first time as global Internet sales rose by 30% to $10 billion for the fiscal 2013 year, which ended on Jan. 31. Amazon's U.S. sales growth, in comparison, rose 20% for the year ended Dec. 31 ... Of course Amazon's total sales are far above Walmart's e-commerce sales, coming in at $67.8 billion last year. Last year, Amazon sold more than its 10 biggest competitors combined including Apple (AAPL), Staples (SPLS) and Walmart ...

So WalMart is essentially building out tech Amazon has not only had in place for a couple decades, but intentionally built its business on. To be a tech company that does retail was Amazon's strategy all along. It remains Amazon's strategy today. It never was WalMart's intention to morph into some form of hybrid. But that's what it's doing, almost wholly as a result of Amazon's disruption.

WalMart, in the early stages of this tech/e-commerce buildout, grew online sales at a faster clip last year than the more mature Amazon. However, in terms of sheer volume, Amazon blows WalMart and every other meaningful competitor combined away. In the shell of a nut, everybody else is nipping away at Amazon's ankles. It's almost as if Amazon's sitting on the couch clipping its toenails and the rest of retail is waiting below catching the scraps. Odd analogy aside, that's what we're seeing, a pack of retailers siphoning from the top. While that might ding Amazon in the near-term, it doesn't feel like a sound long-term plan for the rest of retail.

Ultimately, the company (or, more likely, companies) with the best marketing and the best tech wins. The one (or ones) that not only assembles e-commerce infrastructure, but creates an ecosystem that can compete with an Amazon ecosystem, anchored by Amazon Prime. Sears Holdings (SHLD) sure as heck isn't doing it with "Shop Your Way." And nobody else, outside of WalMart, appears to be putting together anything that resembles a true and potentially sticky multi-faceted consumer platform.

It could be relatively easy to get bullish on a physical retailer other than Apple and a handful of high-end, exclusive or otherwise unique brands again. It will come down to not simply that the potential winners have the tech, but what do they do with it? Do they do what's already been done by Amazon? Or do they move to the forefront and, for once, out-innovate Amazon? That's going to be the key -- who pulls a Starbucks (SBUX) and sets the trend rather than predictably follow it.

--Written by Rocco Pendola in Santa Monica, Calif.

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Rocco Pendola is a full-time columnist for TheStreet. He lives in Santa Monica. Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.

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