When is the right time to reinvent your business?

When is the right time to reinvent your business?


The shifting fortunes of leading US broadline retailers across these three eras—and the Big-Box Era that preceded them—shed useful light on the importance of timing when it comes to reinvention. 

In 1990, the broadline subsector was dominated by three companies, each commanding a roughly equal share of the market: Kmart, Sears, and Walmart. Walmart led the Big-Box Era by building mega-stores that offered much greater economies of scale and convenience, based in part on technology adoption, including barcode scanning capabilities, and the strategic placement of distribution centers to support its growing locations. A decade later, it had doubled its market share and grown its market capitalization tenfold. Kmart and Sears missed the shift to a big-box business model and saw their relative market shares shrink to 15% each. 

Next came the Dot-com Era, highlighted by Amazon’s entry into broadline retail and its focus on the customer experience, which offered traditional retailers an opportunity to build their own digital presence and extend their customer reach. After starting with books in 1995 and expanding into the music and video categories in 1998, Amazon established a quick lead as it broadened further into electronics, toys, home goods, and other product categories. Additional retailers followed suit; sears.com came online in 1998 and walmart.com in 2000. Relative to Sears, Walmart made a series of smart moves; for instance, it launched walmart.com as a separate entity, which gave the e-commerce operation greater autonomy from the parent company, even as Sears kept tighter hold of its online operations. And while Sears erred by trying to replicate the breadth of its department store model online, Walmart focused on a narrower initial selection. Walmart’s previous supply chain innovations and expertise, meanwhile, supported more seamless fulfillment and inventory management across its offline and online operations. Both Sears and Kmart, by contrast, struggled with fulfillment and inventory management issues across their online and physical operations.

But Amazon had already gained significant market share. By 2010, Kmart was no longer a competitor, and Sears had seen its relative market share fall to below 10%, just ahead of Amazon’s. Walmart still dominated the market (and remains the world’s number one retailer by revenue today), yet its market capitalization was only 30% higher than it had been a decade previously—while the value of the S&P 500, during that same stretch, grew by roughly 190%.

In the Omnichannel Era, meantime, Amazon powered ahead. Even as Walmart played catch-up in digital services (such as online grocery and delivery), it arguably may have moved too late to reap the full gains available. In the decade from 2010 to 2020, Amazon’s market capitalization grew from US$59 billion to US$1.6 trillion—four times Walmart’s, although Amazon Web Services (AWS, which is itself a business model innovation pioneered by Amazon) clearly made a large contribution to this growth. Amazon’s revenue figures, excluding AWS’s contribution, paint a similar picture, growing from a 7% relative market share to 39% (see chart below). 

In the Online-First Era, catalyzed by covid-19, a similar story played out: Amazon continued to innovate its offering, and Walmart made moves to catch up, not only through online grocery and delivery but through other innovations as well.5



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