Thirty years ago, in a tightly contested run for the White House, political strategist James Carville characterized the singularity of focus he felt was needed to win the election with the now famous quip, “It’s the economy, stupid.”
That sentiment is arguably even more true today than it was when he made it during the comparatively short and mild recession of the early 1990s, especially from the point of view of the nation’s two largest retailers who are now engaged in a battle for the hearts and wallets of strained consumers, the likes of which they’ve never faced before.
While 60-year-old Walmart has a much longer resume when it comes to navigating tough economic times, Amazon has now faced four recessions since the 28-year-old eCommerce upstart launched in 1994, including the dips of 2001, 2008 and momentarily in 2020 during the pandemic trough.
As much as every recession and rebound are different, the current one — although not officially sanctioned as such by the National Bureau of Economic Research (NBER) yet — is sure to go down as the inflation recession, worsened by the chain reaction of events and circumstances that emanated from a surge in prices not seen since the 1980s.
When Bad is Good
Of course, nobody wants a recession, but any economist will tell you that good things — silver linings — have come out of every hardship, and for Amazon and Walmart, “the Inflation Recession” will be no different as it will force them to craft and deliver innovative solutions that meet consumers’ needs and deeper their connection to customers.
In this case, that need is clearly “value,” as it comes at a time when stretched household budgets have already pushed two-thirds of the country into a financially fragile and constrained paycheck-to-paycheck existence.
Read more: Unexpected Expenses Could Hobble Inflation-Weary Paycheck-to-Paycheck Consumers
For its part, Walmart just quantified the stress and habit changes that shoppers are experiencing when it lowered its second-quarter and full-year profit outlook Monday (July 25) after noticing a decline in sales.
See more: Walmart Cuts Q2, FY23 Profit Outlook as It Lowers Prices to Move Goods
“The increasing levels of food and fuel inflation are affecting how customers spend, and while we’ve made good progress clearing hardline categories, apparel in Walmart U.S. is requiring more markdown dollars,” Walmart CEO Doug McMillon said in the statement, which perfectly framed the “cause and effect” process at work.
While investors initially saw this announcement as bad news, by the end of the week, Walmart’s stock had recovered almost all of the 10% slump it suffered Monday as the reality that Walmart had essentially just put all of its rival retailers on notice that it wasn’t going to be undersold.
Bad news for competitors but arguably great news for consumers who are about to be deluged with a river of deals, perks and promotions.
Amazon’s Answer
Amazon is fresh off its second-quarter earnings report Thursday (July 28), in which it told investors that — so far — its sales are still growing and that it has not had to resort to the markdowns and clearance sales that Walmart, Target and others have been forced into.
Read more: Amazon Q2 Sees Faster Delivery, Expanded Prime Benefits, Less Discounting Than Rivals
While Amazon Chief Financial Officer Brian Olsavsky told analysts on the company’s earnings call that the company is “cognizant that things could change quickly,” much of the conversation was focused around how this global retail powerhouse was using its over 200 million Prime members as a tool to drive sales, as well as a magnet to attract sellers and the often hard-to-get inventory that comes with them.
Where Walmart’s solution appears to be largely focused on low pricing, Amazon’s approach defines value in a different way, as the convenience of fast and free shipping along with the increased basket of benefits and entertainment services that come with its $139 annual subscription fee are aimed at much broader customer experience.
“We’ve seen stronger usage of Prime benefits by Prime members and a greater reliance on Amazon for their shopping and entertainment,” Olsavsky said, pointing to faster delivery speeds, improved in-stock inventory levels, and the increased use of Prime discounts within its growing portfolio of physical stores.
Again, bad news for Amazon’s competitors, but great news for consumers.
How this still-developing chapter within the long-running fight between the top two retailers plays out is hard to predict at this time and will largely depend on how deeply the impact on consumers cuts and how long the “The Inflation Recession” lasts.
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