One day logistics challenge delivers up a new front in the omni-channel retail war between Walmart and Amazon

Next day delivery is the latest front to be opened up in the retail e-commerce wars in the US as Walmart steps up to take on Amazon in what’s looking like an increasingly contentious scuffle.

Amazon fired the first shot last month by announcing that subscribers to its Prime service could expect to see the current two day free delivery service halved to a one day deadline. No schedule was put on that, but Chief Financial Officer Brian Olsavsky said at the announcement that the move is going to cost around $800 million in investment to get up and running successfully:

We're able to do this, because we spent 20+ years expanding our fulfilment and logistics network, but this is still a big investment and a lot of work to do ahead of us…We have been offering, obviously, faster than Two-Day Shipping for Prime members for years, one day, same day, even down to one to two hour delivery for Prime Now. So we're going to continue to offer same day and Prime Now selection in an accelerated basis.

But this is all about the core free Two-Day offer morphing into - or evolving into - a free One-Day offer. We've already started down this path. We've in the past months significantly expanded our one-day eligible selection and also expanded the number of zip codes eligible for one-day shipping.

But it is going to take time to get all the necessary moving parts in place, he admitted:

I would say that while our 20-year head start in investments in logistics and fulfilment capacity and partner networks that we've built are helping us, we also do have a network that is tuned to two-day delivery right now, principally for two-day delivery. So we do need to build out more one-day capacity along with our transportation partners. But we're moving quickly and we've got a good head start.

Challenge

That head start is something that Walmart now aims to undermine.  Since January 2017, Walmart has offered free two day shipping on orders over $35. This week  the firm has announced that next day delivery will be rolled out over the coming days in Las Vegas, Phoenix and Southern California with the intention of offering the service to three-quarters of all US consumers, including 40 of the 50 major metros, by year-end.

There are some caveats here. The service will be built around 220,000 most frequently purchased products to begin with. A spend of $35 per order is required to qualify for free delivery and each online basket must only contain purchases that qualify for next day delivery - you can’t sneak a few extra items into the mix.

Outlining the new offering,  Marc Lore, CEO, Walmart e-commerce US, pitched:

NextDay delivery is a great complement to our same-day Grocery Pickup and Delivery options, and free two-day shipping on millions of items. With the combination of these choices, we’re making every day easier for busy families. And, with 90% of Americans living within 10 miles of a Walmart store, we’re well positioned to offer even faster delivery to customers in the future.

This isn’t coming without a price tag for Walmart.  A recent report from UBS estimated that Walmart is looking at $215 million in incremental investments to deliver a service to match Amazon’s, but concluded that:

While this would be a source of incremental cost to Walmart, we believe it has enough infrastructure in place to keep the impact quite manageable.

Lore says it’s not only manageable, it’s actually better financially for Walmart:

Our new NextDay delivery isn’t just great for customers, it also makes good business sense. Contrary to what you might think, it will cost us less – not more – to deliver orders the next day. That’s because eligible items come from a single fulfilment center located closest to the customer. This means the order ships in one box, or as few as possible, and it travels a shorter distance via inexpensive ground shipping. That’s in contrast to online orders that come in multiple boxes from multiple locations, which can be quite costly.

We can offer fast, convenient shipping options because we’ve built a network of fulfilment assets that are strategically located across the US. We’ve also done extensive work to ensure we have the right products in the right fulfilment centers based on where customers are located and what they’re ordering.

My take

Life moves on fast, and that’s really what it’s all about for us now.

That comment from Walmart International CEO Judith McKenna at this week’s Retail World Congress in Amsterdam refers to the collapse of Walmart’s bid to merge its UK Asda grocery business with Sainsbury’s. That $9.5 billion deal ended up being blocked by competition regulators in a huge setback to both Walmart and Sainsbury’s.

But it’s equally applicable to other areas of Walmart, none more so than the omni-channel transformation, both in the US and abroad. The company’s e-commerce gambit in India continues to evolve, while at the other end of digital spectrum the firm is giving up on e-commerce in Brazil and focusing on physical stores, having failed to crack the market in that region.

Back on the home front, it’s digitally-enabled delivery services that top the agenda. Walmart points out that unlike Amazon, there’s no membership fee to qualify for its one day shipping service and rolls out the familiar boast of every US consumer being in close proximity to a physical store, a localization aspect that makes the one day delivery offer viable.

On the other hand, Amazon’s inventory of products is bigger than the initial scale of the Walmart rival and there’s no minimum purchase price to meet. Whether Walmart can cut the claimed headstart of the Bezos behemoth is something that only time will tell. And with the majority of Walmart’s e-commerce business coming from groceries, there remains the still-to-be realised challenge to come from Amazon in that space.