Amazon and Walmart Hit the Wall as Shoppers Shift Spending

Amazon and Walmart are experiencing their weakest quarterly sales growth since before the pandemic, with Amazon at 3.7% and Walmart at 3.2%, barely outpacing inflation, as consumer spending shifts towards services, experiences, healthcare, and housing. While Amazon maintains a slight edge in overall retail spending, both companies are losing ground when considering total consumer spending, with Amazon's share declining to 3.3% and Walmart's to 2.6%. Notably, Walmart saw a significant increase in discretionary spending share, potentially signaling a shift in consumer preference towards price and value, especially as tariffs threaten price increases.

Analysis

Both Amazon and Walmart are confronting a significant slowdown in growth, with Q1 2025 year-over-year sales increases of 3.7% for Amazon and 3.2% for Walmart, respectively, marking their weakest performance since prior to the COVID-19 pandemic and barely exceeding current inflation rates. This deceleration contrasts sharply with Amazon's typical quarterly growth around 10% and Walmart's usual 5% since 2022, indicating that actual unit sales are likely flat. The primary driver identified is a structural shift in U.S. consumer spending, with a PYMNTS Intelligence report highlighting a move away from goods towards services, experiences, healthcare, and housing, thus eroding the pandemic-era tailwinds that previously benefited both retailers. While Amazon increased its share of total U.S. retail spending to 8.6% in Q1 2025 (from 8.4% year-prior) and Walmart held steady at 7.7%, their shares of *total* consumer spending declined to 3.3% for Amazon (from 3.4%) and 2.6% for Walmart (from 2.8%), underscoring the impact of this broader spending reallocation. A notable development is in discretionary spending, historically Amazon's domain, where its share fell to 23% in Q1 2025 from 26% in Q4 2024, one of its weaker Q1 performances since 2022. Conversely, Walmart's share of discretionary spending rose to 6.4% in Q1 2025, its best seasonal showing in two years, potentially reflecting a consumer pivot towards value amidst rising tariff concerns and Walmart's enhanced eCommerce focus. This trend, coupled with the threat of tariffs impacting prices, suggests a challenging environment where price and perceived value are becoming increasingly critical for consumer choice.

Key Decisions for Investors

• Investors should closely monitor shifts in consumer spending between goods and services, and how effectively Amazon and Walmart adapt their strategies to this evolving landscape.
• Evaluate Walmart's recent market share gains in discretionary spending for sustainability against Amazon's efforts to protect its historically strong position in this higher-margin category, considering the more negative sentiment surrounding Amazon's recent performance in this area.
• Factor in the potential impact of tariffs on both companies' cost structures, pricing power, and consumer demand, as these could significantly influence future profitability and exacerbate wallet pressure on consumers.
• Given the flat unit sales growth and eroding share of total consumer spending for both entities, assess valuations critically and consider the heightened importance of operational efficiency and market share defense in a slower-growth environment.