There are points where a “war” can be good for business. The current “war” between Amazon, Walmart and Target, for instance, has created a new set of “digital weaponry,” as a battle for market share has begun like no other, this all ahead of the biggest  battle of the year. But the winner, at least initially, is the consumer, says a Cowen report.

Walmart and Target
By Walmart Corporate from Bentonville, USA (Walmart store exterior) [CC BY 2.0], via Wikimedia Commons

Amazon P/E multiple gives it currency to cut prices in war with Walmart, Target

“War spurs innovation,” Cowen’s Oliver Chen points out in a November 21 research piece. And this innovation could be turning around the competition in some surprising ways.

The much advertised “Amazon Apocalypse” might have just scared Target and Walmart into becoming more efficient and aggressive players in the market.

Amazon has achieved a stunning degree of success, with profits increasingly coming on the web services side of the business and not from competing on a retail level. The stock price multiple on Amazon, currently at 287 times earnings, is the key factor to watch. From one perspective it is a signal from Wall Street as to how aggressively the firm can cut prices. Walmart, by contrast, has a 25.66 multiple driving its stock price while Target, the subject of recent technical glitches, knuckle drags with a 12.02 multiple.

But what these forward-looking multiples might not be calculating is how Amazon is making Walmart and Target more competitive.

Walmart is the stronger retailer, says Cowen

“Both Walmart and Target continue to take significant steps to improve their digital competitive positions vs. Amazon,” Cowen pointed out. “Both retailers appear to be in stronger positions than the majority of retailer peers to succeed in today’s digital world.”

But one is better.

“Despite impressive growth at both retailers, we believe Walmart currently has the edge vs. Target.”

With that statement by Cowen, note how technology has become a driving factor in stock selection, a factor that might not have even been on the minds of CEOs until the Amazon effect took hold.

Cowen thinks Walmart bests Target in terms of omni-channel convenience, digital capabilities, and brand value perception. “Meanwhile, we think Target has an edge when it comes to tests and opportunities.”

We like different tests at both WMT and TGT, although we do believe TGT’s tests could provide greater incremental sales lift in the short to medium term once scaled. Nevertheless, we think WMT’s employee delivery test could be a game-changer for the industry. Tests at WMT include: (1) associate delivery; (2) pick-up towers in 100 stores; (3) digital endless aisle; (4)same-day grocery delivery; (5) and smart basket at Meanwhile, tests at TGT include: (1) Restock which is now available in 11 markets; (2) drive-up service in 50 stores; and (3) same-day delivery in four stores in NYC.their drive-up tests in 50 stores, which we think can drive significant growth once scaled.”

But “tests” and “opportunities are not what’s driving competition as the brave new world of computer automation is around the corner. It is technical prowess.

As Walmart and Target, the former has been given the technical advantage

“Advantage, Walmart,” the Cowen report says when looking at the technical component of the business.

In this regard, Walmart has a number of benefits, including an extensive product library — 70mm SKUs — free two-day delivery on over two million items on orders above $35, an easy reorder system that ties into the physical store. Walmart’s recent acquisition and other recent apparel deals coupled with its recent partnership with Google on voice shopping make it behemoth to be reckoned with.

This is not to say Target isn’t without its technical benefits, which include 360-degree digital shopping, a Google partnership on voice shopping and a partnership with Pinterest; private and exclusive product lines as well as free-shipping with no minimum orders during the holiday season

Competition isn’t bad, says Cowen. In this case, at least in the short run, the customer benefits.