June 13, 2012, 11:18 AM

When Will Amazon Become Larger Than Walmart?

By analyzing historical sales growth rates for both companies, the answer is in 2023, just 11 years from now.

I like to distill our economy’s complex transition from store-based retailing to web-based retailing into a more easily understood battle between the Titans of Retailing: Walmart, which dominates store sales, and Amazon, which dominates e-retailing.

At first blush, it seems hard to compare the two at all. In its fiscal year 2012 (ended Jan. 31, 2012), Walmart’s global sales totaled $444 billion, making it the world’s largest company in terms of revenue. If Walmart were a country, its economy would be the world’s 28th largest, just ahead of Austria and South Africa. By comparison, Amazon finished 2011 with sales of $48 billion—about one-tenth that of Walmart’s sales. If these two are the Titans of Retailing, Walmart deserves upper case T and Amazon a lower-case one.

Amazon Grows Four Times Faster Than Walmart

Yet, this is not a matter of where these companies are today. It’s a matter of how fast they are growing into the future. In the last 10 years, Walmart has grown at a compounded annual growth rate of 8.24%. Amazon, by comparison, has grown at 31.4% per year for the last 10 years—almost four times as fast as Walmart.

In Walmart’s defense, it’s fair to note that it’s harder for the world’s largest company to grow at an Amazon rate because it’s operating from a much larger base. The best small companies typically grow faster than the best large ones for that very reason.

But what if we looked back to when both of these companies were small. That would have been when they each went public and barely registered on any business analyst’s radar. In the year before it went public in 1970, Walmart generated total sales of just $31 million. (Today it sells that much merchandise in about 18 minutes of operation.) When Amazon went public in May 1997, it had just reported 1996 sales of only $16 million.

From Start-Up to $48 Billion in 15 Years

At the end of its first 15 years as a public company, Walmart had stunned the retailing world by generating sales of $6.4 billion. That was a stunning achievement for a retail chain—easily the fastest growth rate ever recorded by a retail chain. But it pales in comparison to Amazon’s growth in its first 15 years as a public company. During that period, the Seattle-based web merchant grew from a standing start to $48 billion in annual sales—fully 7.5 times the size Walmart reached after its first 15 years as a public company.

That brings us to projecting how these two titans of retailing will grow during the next 15 years. In my presentation at last week’s IRCE 2012 conference, I projected Walmart’s growth during the next 15 years at 9% per year, which is slightly faster than its actual growth rate in the last 10 years and assumes a gradual economic recovery.

In contrast, I projected Amazon’s annual growth rate at 30% during the next 15 years. Before you suggest that such a rate is way too generous, consider this. Amazon grew at 31.4% per year in the last 10 years, but its growth actually accelerated in the last five years to a CAGR of 35%, even as the U.S. economy weathered a Great Recession and a tepid recovery. Here’s another consideration: In its second 15 years as a public company, Walmart grew at a compounded annual rate of 23.6%, which equates to 55% of its annual growth during its first 15 years as a public company. If Amazon’s growth rate slows in its second 15 years as a public company in the very same manner as Walmart’s growth did in its second stanza, Amazon would still grow in its second 15 years at 39%, or just over half of its first 15-year growth rate.

Why Walmart’s Focus Must Be Online

Given this context, projecting Amazon’s growth at 30% per year for the next 15 years seems more than reasonable, and some might say even conservative. And if these 15-year growth projections are accurate—30% for Amazon and 9% for Walmart—then Amazon becomes a larger company than Walmart in 2023, just eleven years from now.

I’m not saying this will happen, but it is clearly where the trend lines are leading. And you can bet this is exactly the scenario Amazon wants to happen. Its strategy does not envision playing second fiddle to Walmart or anyone else. Walmart’s challenge, of course, is to prevent this projection from being realized. But in order to do that, the Titan of Store Retailing must make online retailing its top priority, because the days of rapid growth of store-based retailing are over.

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