Wal-Mart: Falling Prices and Instant Gratification

In a move to capture even more customers, and compete more directly with Amazon.com, Wal-Mart is beginning to test a Same-Day Delivery option for online shoppers. The goal is to make virtually all of Wal-Mart's products available to customers who order online within 4 hours at their doorstep (via UPS). This change in Wal-Mart represents not only a competitive threat to outside businesses, such as Amazon.com, but also an expansion in Wal-Mart's vertical and horizontal organizational boundaries.
Wal-Mart can claim its vertical boundary expansion to the fact that this new service continues to move Wal-Mart's activities closer to the consumer. While Wal-Mart has utilized its online presence to offer shopping, shipping and even ship-to-store options for customers it is now testing expanded user options. No longer do people have to check the famed "People of Wal-Mart" website to see if they got caught shopping in their pajamas or underwear, they can now shop within the privacy of their homes and still get the product the same day. The ability to receive a product the same day with even less effort expended on the customers behalf may even increase the purchase of impulse items.
The horizontal boundaries of Wal-Mart will also expand through the scale of their operations and with the potential to later include a scope expansion as well. Currently, Wal-Mart customers enjoy the options of shopping in the retail store, regular shipping from the online site and the widely used ship-to-store option. By adding  direct same-day shipping to your home Wal-Mart can expedite the time it takes to receive their goods and products. While Amazon.com has offered two-day shipping and very limited same-day, this Wal-Mart option evolves their already "Super Centers" into mini-distribution centers as well.
Same-day shipping is currently offered with limited products and in few locations. If the test goes well Wal-Mart expects to add same-day options to its 4,000 national retail locations. In addition to more stores offering same-day they will also offer more products in the same-day shipping extending the scope.
As a much larger provider of goods Wal-Mart has a competitive advantage over Amazon.com. Wal-Mart has the buying power to keep prices low and continually drive them lower and with its numerous retail locations Wal-Mart has the ability to distribute products same-day more efficiently. Although the details are not fully published this same-day shipping will be delivered through UPS. Wal-Mart also has the ability to forecast demand for same-day by using their already established ship-to-store order histories.
Only time will tell if the test is a success and Wal-Mart rolls out same-day shipping on a large scale or if the costs and logistics prove to be too much for Wal-Mart to manage. Regardless of the results it does show that even a retail super-giant such as Wal-Mart can continually evolve and extend both its vertical and horizontal boundaries.



Dave Tufte said...

Clayton Parry: 100/100.

What I find fascinating about this is a point that has been commonly made in micro for a while, but that students tend to think is crazy.

Think about this. Wal-Mart is a big warehouse. When you buy something there, and take it to your house, and don't use it immediately ... you are a warehouse too.

But, there is an opportunity cost to storing products (space, waste, other foregone opportunities). And in finance, you'd actually make a point of including those opportunity costs in how you evaluated your projects.

What Wal-Mart is doing is reducing their warehousing costs, and that's good for the bottom line. What's interesting is that they may have realized that they're in a better position to do this than Amazon is. If so, this could be a killer move.

Dominick said...

This potential move is both fascinating and innovative. However, I think it is important to clarify that same-day delivery is restricted to orders made before noon, and consumers are subject to a “four-hour window” during UPS’s normal hours of operation. In addition, this service is not comprehensive for all of Wal-Mart’s product offerings. Particularly troublesome would be the grocery side (which is apparently being tested out in San Jose and San Francisco), specifically items requiring refrigeration (the UPS Temperature True service may not be cost effective for a gallon of milk). Nevertheless, this effort to reassign retail locations as mini-distribution centers has the potential to reinvigorate interest in brick and mortar stores; and I think that is a positive thing. Although I am a little surprised that Wal-Mart is limiting their home distribution services to UPS and their subsequent restrictions on availability (Wal-Mart stores are traditionally open 24-hrs after all). Staples offers next day delivery service on a myriad of products and utilizes their own fleet of vans (a logistics service which is not dissimilar to Wal-Mart’s plan). Perhaps the sheer volume of business which Wal-Mart conducts simply makes it cost effective to utilize an established carrier. It will be interesting to see if Wal-Mart is able to roll this program out nationwide.

Dave Tufte said...

Dominick: 50/50.

I can see the future ManEc text example: why did Staples vertically integrate their delivery service, while Wal-Mart chose to outsource it?

I don't have an economic answer ... but I do have a personal one. In the 80's I delivered pizzas for a very big restaurant. What's interesting for the case here is that there were a lot of front-end managers that couldn't manage delivery, and a lot of drivers who weren't very good at it. Perhaps logistics is difficult enough that it makes sense to outsource.