Amazon is in the same predicament, but its Q2 performance is better than Walmart! What is the winning chance for Amazon?

It is August now, and the US retail industry has entered the second quarter earnings season. The performance competition between Walmart and Amazon, the two online and offline giants, is eye-catching.

In the first half of this year, the United States has experienced the highest inflation level in history, consumer demand has cooled across the board, and an inventory crisis has broken out. These are the same difficulties faced by Amazon and Walmart. In addition, due to excess inventory, Walmart has been implementing price cuts and clearance activities, and Amazon has also held multiple holiday promotions. However, in terms of Q2 performance, the two seem to have shown completely different trends.

Recently, Amazon released its second quarter financial report. The data showed that despite inflation, consumer demand is still increasing, and Amazon's second quarter revenue and sales are better than expected. On the other hand, Walmart announced a reduction in its second quarter performance expectations and said it would significantly reduce prices.

Walmart's second-quarter earnings report has not yet been released, but it only said that the main reason for the decline was the reduction in consumer demand for non-essential items such as clothing. Judging from Amazon's earnings data, the factors driving the gap between the two are much more specific.

Amazon Chief Financial Officer Brian Olsavsky said on an investor call Thursday that "Prime member spending has increased significantly since the start of the pandemic. Prime members are using Prime benefits more and relying more on Amazon for shopping and entertainment."

In addition, there is a polarization in consumption trends between the rich and the poor in the U.S. Low-income people are reducing their spending, while high-income people are snapping up luxury goods and high-priced items.

For Amazon, Prime members, who drive the bulk of its sales, are mostly wealthy, several surveys show. A 2016 report from Piper Jaffray showed that more than 70% of households with annual incomes over $112,000 have Prime memberships.

Walmart, by contrast, caters primarily to lower-income consumers who are more vulnerable to high inflation.

"Amazon's third-party marketplace proved to be a clear advantage in the second quarter, offering broader selection and pricing flexibility," Baird Equity Research analyst Colin Sebastian said in a note. "Amazon's third-party marketplace accounted for 57% of Amazon's North American sales, up from 55% in the first quarter."

Analysts also said it also comes down to the business models of Walmart and Amazon.

While Walmart relies heavily on deep relationships with suppliers to stock its more than 4,700 U.S. stores with the right merchandise, Amazon generates revenue from the flat fees it charges third-party sellers on its Amazon.com marketplace.

It also insulates Amazon from shifting consumer shopping trends, potentially with less impact on profitability than Walmart or other traditional retailers.

Editor✎ Ashley/

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