Walmart is the king of all retail, with revenues that are six times greater than its nearest competitor. Amazon has a comparable stranglehold on the e-commerce industry. And while it may have once seemed that each of these mega-merchants were lords of their own separate castles, it is becoming increasingly clear — as e-commerce sales continue to grow its share of total retail sales — that these two behemoths will battle it out to determine the future of the retail industry.
Amazon knows that e-commerce sales won’t just inexorably rise forever. Traditional retailing has advantages, like the ability to offer customers the chance to see and touch a product before buying. Another key strength of traditional retail is instant gratification. A customer can go out and get a product right now at his nearest retailer if he so chooses. But recently, Amazon has been trying to neutralize that advantage by offering same-day delivery for some products in a limited number of areas. And while expanding that service to more places and products may be a ways off, it is clear that Amazon is intent on cutting down traditional retail’s “instant gratification” advantage as much as is economically possible.
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Walmart isn’t taking it lying down. The big-box giant announced this week that it too would be offering same-day delivery, using its extensive network of superstores as distribution centers, and shipping products to consumers via UPS. According to a report in The Wall Street Journal, the service will initially be available in the Northern Virginia, Philadelphia, Minneapolis, San Jose, and San Francisco areas. The service will cost $10 per delivery, with no minimum order. Amazon’s own same-day delivery service costs $8.99, with a $0.99 per-item shipping charge.
How big of a deal is same-day delivery? The jury is still out. As evidenced by the high shipping costs, this is not a cheap thing to do. With a ten-dollar-per-order shipping charge, it’s unlikely that many customers will regularly take advantage of the service, unless they are really in a bind, need a product immediately and don’t have time to go to the store themselves to pick it up. Of course, as with any service, the more demand for it there is, the more cheaply a retailer can provide it.
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More importantly, however, the move is a signal of Walmart’s desire to make a big play for ecommerce business. It comes on the heels of the big-box retailer’s decision to stop selling Amazon’s Kindle e-readers and tablets, as these devices have become a main facilitator for consumers to purchase products through Amazon.com. In a presentation to investors yesterday, Walmart made its global ecommerce efforts a central theme of its pitch.
According to the trade publication, Internet Retailer, Walmart’s ecommerce sales were $4.9 billion, which is roughly 1% of its total revenue, and well shy of Amazon’s online sales of $48 billion. But Walmart is known for its ability to adapt to the times and to continue to grow revenue after many other mature companies would have rested on their laurels and enjoyed the fruits of being an established player. And while ecommerce sales are just a sliver of the firm’s overall revenues, the distinction between online and offline shopping is becoming more and more blurred. For instance, Walmart has claimed that half of its online sales come in the form of in-store pickups, where customers purchase the item online and then travel to the store to get it.
With the retail landscape changing so rapidly, it makes sense for the firm to engage in low-risk experiments like same day delivery. Ultimately, it may not be economically feasible, as customers may prefer to swing by a nearby store instead of paying huge shipping fees. But it doesn’t hurt to give customers that option. By showing a willingness to experiment and change, Walmart gives itself more than a fighting chance to dominate the future of retail, just as it has the past.