When it comes to brick-and-mortar stores, nobody is bigger than Walmart. The company is also keenly aware of trends that are affecting the future of big retail stores and it is aggressively fighting to maintain its place as the world’s largest retailer. Online sales are obviously the greatest threat to traditional store purchases. Walmart got serious about its strategy to deal with online sales a couple of years ago when it established an online group. In March 2011, it announced “that it would introduce a program nationwide called ‘Pick Up Today’ that allows customers to submit orders online and pick up their items a few hours later in their local store.” [“Wal-Mart Has a Web Plan to Bolster In-Store Sales,” by Stephanie Clifford, New York Times, 10 March 2011] Clifford noted that the move wasn’t “revolutionary — Sears and Nordstrom … already [had] similar programs.” She added, however, that “as the world’s biggest retailer,” Walmart “tends to set the bar that all competitors must then hurdle.”
The following month (April 2011) Walmart “swung its bulk into the fast-changing world of social networks by acquiring a small California company that it will use to explore new ways of reaching shoppers digitally.” [“Walmart taps into Silicon Valley expertise,” by Barney Jopson and Richard Waters, Financial Times, 19 April 2011] The company acquired by Walmart was “Kosmix, which has developed a platform to filter and organise material from social networking sites to present to individual users.” Jopson and Waters reported:
“The move signals that Walmart is joining other multinationals seeking to set up outposts in Silicon Valley in order to tap into engineering talent and new ideas in the exploding social media and mobile internet businesses. … Walmart said Kosmix and its founders would operate as part of a newly created group called @WalmartLabs, which will be based in Silicon Valley and develop technologies and businesses for shopping online and with smartphones.”
A few days after announcing the acquisition of Kosmix, Walmart announced it was “taking on competitive threats from Amazon.com Inc. and other big online retailers by testing out home delivery of groceries.” [“Wal-Mart Tests Home Delivery,” by Miguel Bustillo, Wall Street Journal, 25 April 2011] Bustillo reported:
“The Bentonville, Ark., retailer launched a new service Saturday in the San Jose, Calif., area called Walmart To Go that allows customers to purchase food, health-and-beauty products, medicine and other basic household goods online and have them delivered to their doorsteps for fees starting at $5.”
Since starting its online group, Walmart has enjoyed a steady increase in online revenue. At the most recent annual meeting, Neil Ashe, president and CEO of Walmart’s global e-commerce, announced that the company’s annual online revenue now totaled $9 billion. [“Walmart touts e-commerce moves at annual meeting,” by Mike Troy, RetailingToday.com, 12 October 2012] The retailer wants to ensure that online revenues continue to grow along with in-store sales. Troy reports that globally “McKinsey & Co expects [online sales] to reach $1.3 trillion by 2015.” That’s a lot of money and Walmart fully intends to get into that cash flow as deeply as possible. Troy continues:
“Walmart has shown through its internal actions and acquisitions that it is serious about more aggressively pursuing the e-commerce opportunity. Accordingly, Ashe reeled of a list of recent initiatives and accomplishments in the area of e-commerce, multichannel and social media. He described Walmart’s 22 million Facebook fans and an innovative social media contest called ‘Get on the Shelf,’ that allowed Facebook fans to vote for products they wanted to see offered at Walmart. He talked about how the company is leveraging advanced analytics to glean new insights from Twitter and Facebook data streams. The company’s @Walmartlabs innovation engine within the global e-commerce group built a new product search engine called Polaris that is improving the conversion rate of searches. A pay-with-cash feature was added that allows people to order online and have product delivered to their home after they pay at a local store. Originally intended as an offering for the unbanked, a surprising revelation has been that many of the transactions are completed in store with a credit card. And, the company is already operating successful and rapidly growing food delivery operations in the United Kingdom and Shanghai. Perhaps the most intriguing development to date however is a pilot program involving same day delivery of popular products in San Francisco, Minneapolis, Philadelphia and Washington, D.C. The program leverages Walmart stores in those markets by using them as fulfillment centers with UPS executing deliveries of orders placed before noon.”
In fact, Walmart’s announcement of same day delivery garnered a lot of attention in the press. Anne D’Innocenzio, of the Associated Press, reported, for example, “Wal-Mart is testing a same-day delivery service in select markets for customers who buy popular items online during the holiday shopping season.
The move comes as the world’s largest retailer faces increasing competition from online giants such as Amazon.com, which is testing same-day delivery in 10 markets.” [“Wal-Mart tests same-day delivery for holidays,” USA Today, 9 October 2012] D’Innocenzio notes, “The program builds on a same-day grocery delivery launch in April 2010 in San Jose.” She continues:
“About 5,000 general merchandise items, including flat-panel TVs, toys and Apple iPads, will be available for same-day shipping. The delivery charge is $10 for an unlimited number of items, with no minimum purchase. Shoppers in San Francisco and San Jose will be required to have a minimum order of $45. ‘This builds on a testament to try to provide greater convenience to our customers,’ said Amy Lester, Wal-Mart spokeswoman. She said that right now, the company has no immediate plans to roll out the service to other stores. ‘This is truly to learn and better understand what our customers want,’ Lester said. … Wal-Mart’s service works this way: Customers place orders until noon and then choose a four-hour window to receive the delivery the same day. Wal-Mart is using UPS trucks to deliver the merchandise. For the San Francisco and San Jose markets, shoppers have to order by 7 a.m. and Wal-Mart is using its own trucks in those regions.”
D’Innocenzio states that “Amazon.com began testing same-day delivery service in 2009. The program is now available in 10 markets, including Chicago and Seattle.” Concerning Walmart’s announcement, supply chain analyst Bob Ferrari writes, “What makes this service noteworthy is that Wal-Mart will utilize some of its brick and mortar stores as the actual order fulfillment pick-and pack point, contracting with UPS for the same day, last mile delivery to the consumer.” [“Wal-Mart.com Responds to Amazon with Announced Same Day Delivery Option,” Supply Chain Matters, 10 October 2012] He continues:
“Indications are that UPS will offer a nighttime delivery option. The retailer has been struggling to re-build its online capabilities and counter the market momentum of existing online providers, especially Amazon. In essence, Wal-Mart had no choice but to launch some form of a same-day delivery option for online consumers.
Distribution center and order fulfillment professionals are well aware that the most expensive, unreliable and inefficient fulfillment point is the brick and mortar retail outlet. The reasons are obvious. The primary purpose of stores is merchandizing and fulfilling local traffic retail requirements. Inventory stocking strategies are predicated on localized store-level traffic, and with today’s bare bone retail budgets, there has been little investment in inventory item tracking, accuracy and stock handling, let alone individual pick and pack fulfillment. Order fulfillment efficiency comes from highly efficient and automated distribution centers sourced in areas that optimize transportation costs. The difference however in same-day delivery is whether the consumer is willing to pay a significant premium in shipping and handling, to bypass the physical and inventory efficiencies of a high volume distribution center.”
Ferrari is correct about the differences between a distribution center and a store and the costs involved. That’s why it appears that Walmart is limiting same day delivery service to “popular” general items that it normally stocks in-store in large numbers. Ferrari concludes:
“The ongoing battle among online and brick and mortar based retail involves both impactful sales and marketing as well as most efficient supply chain fulfillment capabilities. Announcements regarding same day or next day delivery are therefore a sign of where the skirmishes of both entities will evolve to satisfy consumer needs for gratification and experience. In our view, the battle has just begun, and the upcoming 2012 holiday buying season will be another experiment.”
Another trend to which Walmart is responding is urbanization (see my post entitled Will Cities Save Us?). D’Innocenzio reports, “Wal-Mart is accelerating the expansion of small stores, particularly its Neighborhood Market stores, as it looks to compete with a variety of rivals from dollar stores to drug chains.” [“Wal-Mart plans to open small stores faster,” USA Today, 10 October 2012] According to D’Innocenzio, Bill Simon, president of Walmart’s U.S. division, told Wall Street analysts, “This gives us the opportunity to build more stores for less money.” She continues:
“The focus on small stores is part of Wal-Mart’s strategy to continue increasing sales while becoming more efficient with its capital expenditures across the globe. Its U.S. namesake business is roaring back, thanks to re-emphasizing rock-bottom low prices, and officials says they want to apply that same discipline to how it approaches its store expansion. … Express stores are less than one-tenth the size of Wal-Mart supercenters and offer groceries, general merchandise like tools, and pharmacies. Neighborhood Markets are more than twice the size of Express stores and offer perishable food, household supplies and beauty aids as well as a pharmacy.”
It’s clear that Walmart is not ceding any potential marketing opportunities to competitors. As Clifford noted at the beginning of this post, Walmart “tends to set the bar that all competitors must then hurdle.” The company wants to ensure that the bar continues to rise.