Walmart recently announced InHome Delivery to bring groceries directly to customers’ fridges, the latest example of Walmart closely following the Amazon playbook. Amazon announced in-home delivery with its Key service in 2017. While the fast follower approach may seem prudent, we think it’s a mistake. Walmart needs to do what only Walmart can do — its violin concerto — to power a unique approach to shipping that could truly rival Amazon.
State of the Union
With the rivalry between Amazon and Walmart heating up, Walmart has been closely following Amazon’s playbook over the past five years in an effort to close the online market share gap — and it’s working. Walmart’s U.S. ecommerce segment (expected to be $28B this year) grew 37% y/y in the Apr-19 quarter compared to Amazon (expected to generate North America Retail sales of $165B this year), which grew 17% in the Mar-19 quarter.
It’s Going To Get More Difficult
Unfortunately for Walmart, it’s going to get increasingly difficult to compete as consumers begin to expect free 1-day delivery. Marketplace Pulse research estimates Walmart currently offers 130k products for 1-day delivery compared to Amazon at 10M. This gap will widen in the months ahead given Amazon’s upcoming significant investments in 1-day delivery.
Walmart’s Violin Concerto
Walmart operates 3,568 stores and 599 Sam’s Club locations in the US, a total of 4,167. As the landscape of commerce changes, we’ll continue to see store closings. We expect Walmart to close 5% of its locations over the next five years. This would leave the company with about 3,950 stores with an average size of 150k sf per store. As a point of comparison, Amazon operates 150 fulfillment centers (average 725k sf) and 50 Prime Hub locations.
Walmart is world class at operating retail stores in a wide range of populated areas. To survive, the company needs to repurpose as much as 20% (800 locations) of these locations to function as hubs for last mile delivery. Walmart is already inching down this path. The company recently closed 63 Sam’s Club locations and turned 12 of them into online fulfillment centers. In our view, Walmart needs to triple down on that strategy.
Leapfrog Amazon to 2-Hour Delivery
A hybrid approach of operating retail stores combined with last mile hubs would retain Walmart’s offline retail presence and give the company a unique advantage to capture share in the fast-growing, same day/same hour delivery segment. If Walmart embraces its world-class asset, it has the potential to one-up Amazon’s 1-day ambitions with a robust 2-hour delivery platform.
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