Today’s business media headlines feature an announcement by global retailer Wal-Mart indicating that its online store will begin to offer same-day delivery for certain trial U.S. cities. The announcement of Wal-Mart to Go capability is an obvious response to Amazon.com’s same day delivery capabilities, and timing coincides with the start of the upcoming 2012 holiday buying season. The service is reported to cost an incremental $10 regardless of the size of the order, and is limited to a select 5000 offered items.
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. 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.
In a Supply Chain Matters July commentary, we noted how Amazon has been pursuing a broader strategy for same delivery capability from select automated fulfillment centers. While Amazon previously sourced its order fulfillment capabilities in tax-exempt states, it is now bowing to major pressures from certain U.S. states to begin collecting sales tax proceeds for purchases made online. Turning setback into opportunity, having to now collect certain sales taxes has motivated Amazon to expand its fulfillment center capabilities to the U.S. states where it plans to collect sales taxes. Further, with its March acquisition of Kiva Systems, Amazon now has the technical capability to implement robotic-based pick and pack fulfillment capability in less physical space, which can easily double existing productivity and efficiency to support same-day fulfillment.
Wal-Mart had no choice but to leverage the one unique asset it has for same-day fulfillment, the retail store. In its reporting on the announcement, The Wall Street Journal noted (paid subscription or free metered view) that Wal-Mart is further trying to tap into the millions of shoppers who either do not have debit or credit cards, or do not feel comfortable in online financial transactions. The WSJ quotes a Wal-Mart spokesperson indicating that nearly half of the retailer’s existing online sales involve either pick-up or payment at a local store. That was a compelling reason to move forward with same day, but we do not view this as a sustainable strategy over the long-term.
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. Readers should however keep a keen eye on how the biggest players with the deepest pockets evolve in providing price and service advantage for consumers.