What can a historian from 400 B.C.E. tell us about cutting-edge corporate strategy in 2019?
There will be war.
Thucydides was an ancient Greek general now known for his book History of the Peloponnesian War, a meticulous chronicle of the epic clash between Athens and Sparta in the late fifth century B.C.E. Thucydides noticed that when Athens—a rising power—began to threaten the status of Sparta—an entrenched power—there were few options other than to duke it out on the battlefields. Historians later began to apply this insight to other conflicts, calling it the “Thucydides Trap.” They noticed that when a determined up-and-comer tries to disrupt an unwavering hegemon, the result was nearly always bloodshed. In 2015, Harvard historians found that there have been sixteen such cases in the last 500 years, ranging from the war between France and the Habsburgs in the sixteenth century to the tensions between the United States and the Soviet Union in the twentieth. Of those sixteen instances, twelve ended in war.
Thucydides’s writings have shaped understanding of how rival powers compete because he was one of the first historians to embrace what is now called political realism. Unlike his contemporaries, Thucydides did not include the gods in his account of history or assume parties took action based on firm morality or ideology. Instead, he focused on how politicians and generals in pursuit of power made decisions based on self-interest, greed, and fear.
Today, there’s one place where self-interest, greed, and fear are like breakfast, lunch, and dinner, and higher powers seem conspicuously absent: corporate America.
The Thucydides Trap need not apply to only dueling city-states or countries. Like Athens and Sparta millennia ago, Amazon and Walmart currently are locked into a feverish competition, and this time, the winner will rule the future of retail, not Greece. As Amazon—the rising power—continues to disrupt the business model that has made Walmart—the entrenched power—an American staple, Thucydides’s lessons can help explain each company’s motivations and predict how the competition might evolve in the future.
Before the Peloponnesian War, Sparta dominated Greece through strength and force. Walmart’s position in the retail industry is similar, even as Amazon continues to make waves. This dominant position reveals itself in both statistics about the company and its cultural and historical influence.
By many metrics, Walmart is a vast and established force in the retail industry. It is the largest company in the world by revenue (five hundred billion dollars in 2018) and the world’s largest private employer (2.2 million employees). There are 4,769 brick-and-mortar Walmart stores in the United States. Incredibly, ninety five percent of Americans spent money at Walmart at least once in 2016. Shopping at Walmart is an American pastime.
Walmart’s rise to ubiquity was slow and deliberate: the company opened its first store in Bentonville, Arkansas in 1962 and expanded outward incrementally. By opening new stores nearby old ones, even in locations that were seemingly suboptimal, Walmart tediously constructed a vast shipping and employee network that still forms the foundation of its business today. Slowly, it weaved itself into the national fabric.
Walmart’s ownership structure is also evidence of the company’s status as an entrenched power: the Walton family owns fifty-one percent of shares and is the richest family in the world. Their vast fortune (a combined total to the tune of 175 billion dollars) means the family has near-unlimited financial resources and political influence to ensure the company’s continued success.
If Walmart is the Sparta of today—a dominant but lumbering beast with impressive manpower and a huge bankroll—then Amazon is Athens.
Compared to Walmart’s lumbering business structure, with a huge number of physical stores and millions of employees, Amazon is nimble. Throughout its existence, the company has focused on adaptability, pursuing a wide variety of opportunities whenever they come along. Amazon has “only” about 650,000 employees, a quarter of Walmart’s headcount, and has businesses in countless sectors ranging from web services to healthcare to music streaming.
Even as one of the world’s most valuable companies, Amazon is still an up-and-comer. In 2017, only forty-two percent of American consumers spent money on Amazon, compared to Walmart’s ninety-five percent, and Walmart’s revenue was almost three times Amazon’s retail revenue in 2018. Amazon’s market cap being larger than Walmart’s (916 billion dollars vs. 296 billion dollars) belies the fact that Walmart is still by far the dominant retailer. Amazon may be the more valuable company, but that valuation rests on analyst’s sky-high expectations for Amazon’s growth as well as its good performance in sectors besides retail. To justify its lofty valuation, Amazon will have to continue to displace Walmart; in other words, it must disrupt Walmart’s hegemony.
The competition between Walmart and Amazon is a special case because few companies have as much at stake as these two. Dominating the future of retail is a valuable prize. When shoe companies, internet service providers, or fast food chains compete, whoever wins may be of relatively little consequence. Walmart and Amazon, however, are competing with hundreds of billions of dollars at stake, and the results will be noticed in the lives of nearly every American. Companies compete all the time, but few examples match the scale of the Walmart-Amazon fight.
If the “up-and-coming” Amazon hopes to take the place of the entrenched Walmart as the first place Americans go to spend their money, the academics who study Thucydides tell us that there will likely be war. Amazon and Walmart are each more valuable than many countries, and each tries to out-innovate the other and build influence, the resulting tension is not so different from a kind of cold war. In fact, this war has already begun, and unlike the Peloponnesian War, the actual Cold War, or the France-Habsburg rivalry, this one will only bring good things.
There are several ways in which each company is vying to earn dominance over the future of retail. On the whole, the changes both have started to make will benefit consumers.
In 2016, Walmart acquired Jet.com, an e-commerce retailer and budding Amazon competitor, and in 2017, it bought a majority stake in Indian online retailer Flipkart. These moves kickstarted Walmart’s push into online sales and helped position the corporation eventually to eclipse some of Amazon’s e-commerce market share. Walmart has also acquired brands like Lord & Taylor, which sells high-end dresses, Fanatics (sports apparel), and Moosejaw (outdoor recreation equipment), and integrated them into their website. These, and other acquisitions, allow Walmart to increase the number of items available on its website in order to grow online sales. Walmart is also well-equipped to grow its online grocery order business because its network of stores makes grocery delivery or in store pick up possible for many customers. The company is also investing heavily in its technology, betting that a slicker website interface, more effective search functionality, and better customer review cataloguing will draw more users online. These efforts will benefit customers by making it more intuitive to purchase items online from Walmart, growing the company’s catalogue, and promoting price competition.
So far, its efforts show promise. Walmart’s online sales jumped forty-three percent in the fourth quarter of 2018, and Walmart’s share of U.S. ecommerce sales is predicted to grow fifteen percent in 2019. Amazon still accounts for about fifty percent of all e-commerce sales in the U.S., but Walmart’s quickly growing share, about five percent, is significant. Since Walmart already dominates in brick-and-mortar sales, its inroads into e-commerce could be bad news for Amazon.
Overall, Walmart has begun to shift toward seeing itself as a tech company, not just a brick-and-mortar retailer. The change was crystallized in 2017 when the company changed its legal name from “Wal-Mart Stores” to just “Walmart”; dropping the hyphen and the word “stores” was a way for it to make its name sleeker and emphasize online sales. In June of 2018, CEO Doug McMillon went so far as to call Walmart a “technology company” and emphasized the importance of innovation. McMillon’s remarks are reassuring because they demonstrate an awareness that complacence could be Walmart’s downfall. The failure to adapt to changing technology has been the death of many an American corporate powerhouse–see Kodak, GE, and Sears. The latter, especially, is a telling example of what can happen when a company is too attached to its brick-and-mortar stores and fails to see how moving online can be beneficial in the long-run.
As Walmart adapts, Amazon must fight back to protect its growth trajectory. Two recent actions by Amazon were direct attacks on Walmart. First, and most obvious, was Amazon’s acquisition of Whole Foods, a master stroke of corporate strategy. For 13.7 billion dollars, Amazon bought an instant physical presence in the form of the five hundred Whole Foods stores throughout the United States. Since the deal, Amazon has used these stores as grocery delivery hubs and package pickup locations and has integrated them into its Prime membership service. If Walmart’s biggest advantage over Amazon was its brick-and-mortar presence, the Whole Foods deal allowed Amazon to begin to level the playing field. (Amazon also recently opened its eleventh Amazon Go cashierless convenience store. These stores could eventually be another important component of Amazon’s physical presence.)
Second, Jeff Bezos showed off his political prowess in 2018 by raising Amazon’s minimum wage to fifteen dollars an hour in response to cries of inequality from Sen. Bernie Sanders. Roughly 250,000 employees were affected, and Sen. Sanders responded by saying, “Today I want to give credit where credit is due.” This move gained Amazon political favor and increased the political pressure on its competitors to follow suit. Amazon has a much smaller proportion of minimum wage workers than its competitors however; there are a relatively small number in its fulfillment centers and smattering of brick-and-mortar stores. It would be infeasible for Walmart to follow suit, since it has millions of employees currently making its minimum wage of eleven dollars an hour. Thus, with little effect on its bottom line (as the pay raise came with reduced benefits for employees anyway), Amazon put its competitors into a political pickle. Amazon’s minimum wage strategy is a symbol of its leadership’s political know-how and willingness to manipulate political rhetoric in its favor.
For now, Walmart is still Sparta and Amazon is still Athens in the war over consumers’ retail dollars. Walmart isn’t going anywhere anytime soon, and Amazon must continue to work tirelessly to capture the vast amount of spending that still takes place in brick-and-mortar stores like Walmart. For now, that competition will benefit customers as the two giants continue to compete over everything from ease of use to worker compensation. Someday, the roles may switch. If consumers continue to spend more and more money online and retail stores begin to be more burden than boon, Walmart may eventually become the “underdog.” It is a very real possibility that sometime soon, Amazon will be seen as the entrenched power, and Walmart (or an entirely new opponent) will plan its rise. In that event, Thucydides tells us that war will result once more. We consumers should look forward to it.