This was the moment Walmart lost to Amazon in the e-commerce race
Adapted from Winner Sells All: Amazon, Walmart, and the Battle for Our Wallets, by Jason Del Rey. Copyright © 2023 by Jason Del Rey.
In the late ’90s, Walmart had all the right ingredients to become the dominant online retailer. But then it made some critical mistakes.
Back in the late ‘90s, when Walmart was a $100-billion-a-year retail behemoth and Amazon was still a fast-growing internet startup that sold books, Walmart had a golden opportunity to dominate e-commerce. Instead, it made crucial mistakes that kicked off an intense 25-year rivalry between the two largest retailers in the world.
In this excerpt from the new book Winner Sells All: Amazon, Walmart, and the Battle for Our Wallets (HarperCollins), author Jason Del Rey, a tech business journalist who has covered Amazon, Walmart, and the e-commerce industry for the past decade, offers a window into the internal conversations at Walmart and what caused the retailer to slip behind in the e-commerce race.
On a late summer day in 1998, Robert Davis marched down Walmart’s Executive Row to the office of CEO David Glass and attempted to alter the arc of business history with a single bet.
At the time, he had spent a few years overseeing a skunkworks team that was intent on making sure that Walmart would embrace the opportunity of selling through a new, emerging channel called the World Wide Web. It might be hard to remember now, but back in 1998, Amazon was just starting to dabble with selling merchandise other than books. Walmart, on the other hand, had access to just about every category of product imaginable, and the resources, pricing, and logistics prowess to blow their tiny rival away.
Jeff Bezos seemed to recognize this, because a year earlier, the Amazon founder had started poaching Walmart bigwigs away from Bentonville. First it was Rick Dalzell, a Walmart IT leader who oversaw the retailer’s innovative data-warehousing initiatives and whom Bezos recruited to be Amazon’s first chief information officer.
A year after joining Amazon, Dalzell phoned his former Walmart colleague Davis to offer him an Amazon job of his own. Davis informed Dalzell that he was unlikely to follow him.
“I drank the Kool-Aid and was very devoted to Walmart,” Davis told me in late 2021, in what he said was his first and only interview on the subject. Still, he was intrigued by the Seattle-based online bookseller’s steadfast belief that the future of retail was going to happen on the internet.
At Walmart, Davis had become frustrated by what he saw as a lack of commitment to e-commerce. To really take advantage of the opportunity, Davis believed he and his peers needed more support from the company’s powerful merchandising and warehouse divisions. He also wanted the CEO to declare that internet retailing at Walmart was more than just a test.
“What I wanted David to do was convene the troops and say, ‘We gotta figure this out,’” Davis recalled.
Seated across from Glass, Davis made the most powerful case you could at Walmart: He “bet his badge” on the idea. In doing so, Davis was agreeing that if Glass backed him with a bigger e-commerce commitment, but then the plan failed, Davis would pack up his bags and hit the road for good.
“David said, ‘No, I won’t take that bet,’” Davis told me.
The denial from Glass, who died in 2020 at the age of 84, was somewhat ironic. Before succeeding Sam Walton as CEO, Glass was the brains behind investments in automating
certain tasks inside warehouses. And the creation of Walmart’s once industry-leading system that provided suppliers with daily store-level sales data for their products happened on Glass’s watch.
But those massive technology investments were mostly geared toward improving Walmart’s core business of selling obscene amounts of merchandise at dirt-cheap prices out of physical stores. While Glass could get behind some types of innovation, he was also the type of executive who had his assistant print out his emails.
When Glass informed Davis that he wouldn’t double down on Walmart’s e-commerce efforts, the CEO predicted that Walmart’s online store would never register more sales than the largest single Sam’s Club brick-and-mortar location, Davis recalled. That may sound absurd now, but sales data at the time backed it up. In 1997, Amazon posted revenue of just $148 million, while Walmart celebrated its first $100 billion sales year.
Davis gave his notice and took the job at Amazon. He was essentially the only software engineer responsible for Walmart’s first online retail website, and when he left in 1998, he took the virtual keys with him.
It took two years before Walmart tried again to relaunch its e-commerce business in earnest. A young Walmart executive who had married into the Walton family—Greg Penner, who would eventually ascend to the company’s chairman role—recommended spinning off the e-commerce operation as a separate company, partnering with a Silicon Valley VC fund, Accel Partners, on the new scheme.
In March 2000, Walmart.com tapped the CEO of Gap’s Banana Republic, Jeanne Jackson, to run the spin-off company with plans to relaunch before the holiday shopping season. The initial projection for Walmart.com fourth-quarter sales that year was $150 million. Instead, Walmart.com finished with just $28 million.
Walmart.com had predicted that around 5 of every 100 website visitors would end up making a purchase. Instead the ratio was closer to 1 out of every 100.
The fallout was significant. Walmart.com had purchased more than $100 million in inventory, but most of it had to be liquidated at a loss. Layoffs ensued. By mid-2001, less than a year after the Walmart.com relaunch, Walmart decided to buy out Accel Partners’ stake and fold the spin-off back into the parent company.
Walmart’s then-CEO, Lee Scott, said the site would still offer delivery to customers’ homes, but would also focus on highlighting the goods that customers could purchase at their nearest Supercenter. Internally, Walmart was facing the innovator’s dilemma: Online sales could siphon sales from the cash machine that was its Supercenter stores. As a result, it seemed, Scott was going to kick the can down the road and make the website do more heavy lifting in the name of increased store sales, rather than vice versa.
Still, over the next four years, Walmart.com grew at a 50% or higher clip, eclipsing $1 billion in sales in 2005. Even more important to Walmart executives, though, was that the web operation was getting closer to breaking even, while Amazon continued to burn cash to fuel growth.
“Everybody was thrilled, and that was a mistake,” said John Fleming, a former Walmart.com CEO. “Because during that same time frame, Amazon invested, say, $4 billion, and we invested a couple hundred million.”
Part of the issue was internal competing interests at the time, where Walmart.com’s leaders would hear “invest, invest, invest” from one side of the organization and “why are you losing money?” from the other.
“It felt like it was a no-win situation trying to figure out how to grow Walmart.com in those times,” a former executive told me.
When Walmart’s fourth CEO, Mike Duke, recruited a new chief technology officer for the company’s e-commerce division in 2011, he said he was “in it to win it” in e-commerce and would “double down, or even triple down” on investments. To insiders, though, it already felt far too late.
“We weren’t aggressive enough in demanding resources,” a former Walmart.com leader told me, “or painting Amazon as an existential threat.”
