Walmart has not really focused on Online so far and their current efforts so far have been subpar.
My question is, what competitive advantage does Amazon have when it builds its distribution centers - automated with robots as they might be, why would Walmart not be able to build them if it deems them necessary? Is there anything that Amazon does in these distribution centers that Walmart would not be able to copy? They certainly can afford it and the Walton family with 50% stake would certainly be understanding if short term results need to take a back seat to protect long term viability.
Vinod
Vinod,
Here is something to think about,
WMT's distribution centers are/were their competitive advantage with respect to other retailers. The era they have grown in and the model they followed caused them to strategically locate their distribution centers such that they could most efficiently service their customers (the big box retail stores around them). It was perfect as long as customers went to the store to shop.
Enter Amzn - their distribution centers (called fulfillment centers) were built and located strategically in this era. They located them such that they could efficiently service their customers (not retail stores but direct customers).
The location of distribution centers is key in retail as it influences what inventory you carry, how much you carry and by when you can restock if necessary. Your suppliers are plugged into these systems and for both WMT and AMZN it works perfectly given their model.
Now if WMT has to replicate AMZN locations, it would clearly be very expensive. Not only that, it would be disruptive to their existing business model with suppliers- it is a classic problem incumbents face in business. That is also why you see an effort from WMT to use their retail locations as part distribution centers for their online model.(pick up from store model)
They will have to do something like MSFT did - scrap the old unwieldy internet explorer and build a totally new browser for the new gen. This is difficult to do, but certainly possible. It would take a lot of investment and patience from investors.
My difficulty with WMT is - do you think the current management is not entrenched enough to overhaul the internet strategy? I would think you need new blood to come in to make such big changes (again like MSFT)
rpadebet,
I do understand the key role of distribution centers and its historical importance in Walmart's growth and competitive advantage. But that is only part of the story. It has also cut a lot of waste in the whole distribution system.
Retailers have historically added a multitude of additional costs and charged these to suppliers. These take the form of display fees, rebates, handling charges, damage allowances, etc. These additional costs have been passed on to the consumers and the resulting revenue allowed retailers to ignore inefficient processes. Walmart has a one price policy that cuts all incentives for wastage in the supply chain. Walmart partners with its suppliers to cut out many inefficiencies in this process - this is an ongoing cycle. Sort of like say 3G.
Walmart already has relationships with suppliers and their business processes are intertwined to reduce costs. Granted this is optimized for brick and mortar. But it does have scale and it is frequently the largest buyer of many of these suppliers so it gives them a leg up over competitors when it needs them to make changes.
Why is Walmart disadvantaged in building separate fulfillment centers to ship directly to customers if the economics made sense rather than using its stores? How is this going to be disruptive to suppliers? They would just ship both to existing warehouses and to these new warehouses (fulfillment centers) as well.
It is using current B&M stores as it might be cost effective/competitive for all we know.
If it makes sense to use fulfillment centers and they confer some competitive advantage to those using them, what would stop Walmart from building them? I am trying to understand if Amazon has some real advantages in building these that Walmart might not be able to replicate? Expensive is not really an issue with Walmart's resources.
They seem to be now focusing on eCommerce finally as they seem to have woken up to the risk from Amazon.
Vinod
Well here we are, 2 years later. Today I picked up my first
grocery order-online-pickup-at store. First experience was very good. The ordering, pick up scheduling, notifying that I was there, loading the car by the Walmart attendant were all professional and no surprises.
The delighters,
- Literally no wait time. I had notified them on the phone 15 minutes before reaching and as I pulled up to the numbered space, they came out.
- A mental barrier I (surely others have) had ordering online: Buying Bananas, tomatoes, bread and eggs. The m.o is that they show you these items before loading in the car. They apparently looked for the same things I would. They even mentioned that I could let them know if I wanted the bananas greener or riper.
- They substituted some items for larger or smaller sizes. Ex. 7.5 Oz Coke versus 12 Oz. They don't charge more. 4 items on my list were substituted and I got more than I paid for.
- I do not like paper or plastic (or worse, cardboard that comes with Amazon orders). This time I let them do plastic but they told me that they would fill up my own cloth bags the next time at the car and recycle the plastic they do use to transfer to the car. I am somewhat Ok with this, but would really like them to keep returnable bags/ containers and eliminate all plastic. "They are thinking about that". I sense they like that the lower overall costs is shared by both!
- $30 is all that's needed for this service to be free. This is a huge delighter for us as we plan to order more frequently than we do now. We do frequently throw away stuff from the fridge. Big cause for this is that we have too much in the fridge, some things get tucked away in the back. Freshness is very likely to go up in our kitchen. Cannot beat this value and this could well be a game changer.
- How this is all going to work is that, I will plan my pick up time while returning from work or some other planned travel(no incremental gas expense); I plan to fill up gas each time at Sam's club gas, which is in the parking lot. Sam's club gas is significantly cheaper than gas stations around me. Plus I get 5% off for using their credit.
Finally, the attendant was super nice. I asked him about tips and they do have a no tip policy. All they want is for me to spread the word:-) There is a $10 reward for referrals. ($10 each).
I like cheap and nobody beats Walmart for cheap. Cheap and convenient! I'm in. Will post any + or - experiences in the future.
Any one else try this?
