Analyzing Digital Growth Across Amazon, Walmart & Target

March 6, 2023

Now that Amazon, Walmart, and Target have all reported their full year 2022 results, we analyzed how they’re doing through an eCommerce lens.

TL;DR

1. Amazon and Walmart outperformed the market in 4Q22 and ’22, while Target underperformed
2. Category mix (e.g., % of sales from grocery) explains performance differences more so than execution or strategy
3. All three retailers’ digital businesses are projected to grow at similar rates in ‘23
4. Digital is projected to account for two-thirds of Walmart and Target dollar growth in ‘23
5. When including Amazon with Target & Walmart, digital sales are projected to account for 88% of dollar growth in ’23

eCommerce leaders should read on for a clearer understanding of what’s actually driving performance differences and what to expect for ’23.

4Q22 Market Growth Comparison

According to the US Census data, eCommerce sales in the US grew 6% Y/Y, with eCommerce accounting for 14.7% of sales, an increase of 10 basis points compared to 4Q21.

Amazon and Walmart outperformed the overall market:

• Amazon U.S. GMV is estimated to have grown 16% Y/Y in 4Q. This was led by 3P sales at 20%+ Y/Y compared to 1P sales estimated at +4% Y/Y in the US.
• Walmart grew its digital sales 17% Y/Y in the US market during 4Q, an acceleration from 16% in the prior quarter. eCommerce penetration reached 14.4% of sales compared to 13.3% a year ago.

Target underperformed the market and its rivals Walmart and Amazon. Digital sales declined 3.3% in the quarter and eCommerce penetration reached 20.8% of total sales, down from 21.8% a year ago.

Target disclosed its same day delivery services grew 4.5% in the quarter and now accounts for more than 50% of its total sales. This disclosure implies its non-same day delivery business declined 10.8% Y/Y.

2022 Market Growth Comparison

The US Census Bureau reported 2022 eCommerce sales grew 7.4% Y/Y, a deceleration from +18.5% seen in ’21. eCommerce penetration is estimated at 14.5% of total retail sales, down ten basis points from the ’20 and ’21. Physical stores meanwhile outperformed digital for the full year, up 8.3% for the year. Digital did return to outpacing physical store sales growth in the second half of the year.

Both Amazon and Walmart.com outperformed the market.

• Amazon U.S. GMV is estimated to have grown 13% Y/Y in 2022, a deceleration from 18% in the prior year. 3P was the primary driver, growing an estimated 21% Y/Y compared to 1P sales up 11% Y/Y.
• Walmart’s digital business grew 12% Y/Y in ‘22. Unlike Amazon, this rate of growth was an acceleration from 11% Y/Y in ’21. eCommerce penetration reached 12.7% of its business for the year, up 60 basis points from 12.1% in ’21.

Target’s digital business underperformed the market, growing 2% Y/Y, a deceleration from 19% Y/Y in ’21. Digital penetration declined 20 basis points to 18.6% of its total sales.

Category Mix and Marketplace Exposure Explain Performance Differences

Target’s underperformance relative to Walmart is at least partly explainable by the difference in category mix.

Walmart’s business mix in FY22 included 56% of sales coming from Grocery, and another 11% coming from Health & Wellness categories, totaling 67% of sales. Our research suggests its sales mix online for these two categories is higher, possibly reaching 80%+ of total sales.

In contrast, Target has a more diverse portfolio mix with 46% of its 2022 sales from Food & Beverage and Beauty & Household Essential categories. Like Walmart, its online sales are believed to over-index to these grocery categories, likely in the 60% range.

This difference of grocery categories accounting for 80% of sales on Walmart.com and 60% at Target.com is therefore a significant contributor to the outperformance of Walmart.com considering grocery sales comps have been trending in the mid-teens compared to Y/Y declines in general merchandise.

A much lesser explanatory factor is Walmart’s concerted effort to grow its marketplace. It has highlighted 400mm items are now for sale on its site, up by 50 million in just the last quarter alone.

Our research suggests third-party sellers have been eager to expand to Walmart but have found the sales performance and volume to be limited so far. In good cases, Walmart.com is amounting to 5-7% of the sales volume for these sellers as what they drive on Amazon’s marketplace.

Target in contrast has taken a curated approach to Target+, its marketplace. This has meant significantly fewer items for sale and theoretically less of a boost. But given Walmart.com marketplace sales have been limited to date, we estimate the category mix is the bigger driver to the performance differences.

While Walmart has not seen the benefit of growing selection on its marketplace and Target has strategically shied away from that approach, Amazon’s outperformance can very much be tied to its marketplace. 3P GMV in ’22 is estimated to have generated more than 3x that of its 1P business. Thus, while its category mix is probably even more exposed to general merchandise than Target, Amazon’s reputation for selection delivered fast has proven to be a significantly resilient component to its strategy.

Once discretionary categories rebound, timing to-be-determined, Target is poised to see better absolute digital performance. Walmart also has a chance to continue its fast growth if it can grow consumer awareness of its burgeoning 3P marketplace mix of general merchandise items and/or enable 3Ps to gain greater visibility through advertising.

It’s less clear how share shifts between Walmart and Target are impacting performance differences. Walmart has suggested it has had several quarters of gaining higher income shoppers. Target would presumably be a share donor in this environment, yet it said it was a unit share gainer across all five of its major categories in 2022. If Amazon is not ceding any share, an open question exists of which retailers beyond these three are donating share.

Category Mix is Also Impacting Market eCommerce Penetration

The U.S. Census Bureau reported digital penetration reached 14.5% in ’22 compared to 14.7% in ’21 and 14.6% in ’20.

Consensus thinking indicates the flattening penetration rate is a function of consumers joyfully returning to stores as they shed pandemic-driven behaviors of online shopping.

However, the shift away from discretionary categories to grocery categories might be a significant explanatory factor compared to consumer behavior shifts. In other words, just as category differences between Walmart and Target help explain eCommerce performance differences, so too is this impacting the broader market and how we measure eCommerce performance.

Grocery related categories are relatively under-penetrated from an eCommerce perspective compared to general merchandise categories. Grocery grew relatively fast compared to historical trends mostly because of price, while general merchandise slowed or even declined Y/Y in ’22.

The combination of relative size of these two categories, growth rates, and Y/Y penetration rate changes within each category all play into the ultimate market penetration rate. Thus, it may be too simplistic of a conclusion to say consumers returning to stores explains why penetration has stalled.