Shipping web orders from stores at Wal-Mart

It is shaping up to be an interesting holiday season in retailing. It is not even Halloween and retailers are starting to roll out various programs to attract customers. Toys R Us is allowing parents to reserve toys and now Wal-Mart is testing same-day delivery for web orders with fulfillment being done from its many stores (Wal-Mart Delivery Service Says to Amazon: ‘Bring It’, Wall Street Journal, Oct 9).

Called Wal-Mart To Go, the service costs $10 regardless of the size of the order. The products will be shipped from the company’s stores, not from a warehouse or distribution center. Wal-Mart began testing the same-day service last week in Philadelphia and northern Virginia.

It added Minneapolis on Tuesday and will add San Jose and San Francisco later this month. The trial will last through the holidays. …

Wal-Mart is betting that its network of thousands of stores, combined with an improved online presence and strong financials, can help it compete head to head with Amazon, which has increasingly stressed fast, free or low-cost deliveries. Amazon launched same-day shipping in 10 cities in 2009.

But shipping from stores, rather than from warehouses as Amazon does, is expensive, analysts said.

“It can be three to four times the cost for the retailer to pick items and pack them from a store versus having a really efficient, automated process back in a distribution center,” said Al Sambar, a retail strategist at consulting firm Kurt Salmon.

So is this a good idea or just a crazy Hail Mary to grab some attention as we head into the holidays?

To be honest, I am not sure. Wal-Mart is not the only retailer fulfilling web orders from its stores. Both Macy’s and Nordstrom ship orders from stores but with something of a different emphasis. Nordstrom, for example, effectively has stores backing up its fulfillment center. It ships from stores when its the only way to make the sale. For Wal-Mart, this is all about speed.

Speed may, in fact, matter for Wal-Mart. The article reports that “nearly half” of Wal-Mart’s online orders are now picked up in its stores. That possibly suggests that Wal-Mart’s online customers really do value getting their stuff sooner than traditional delivery would allow. Further, in-store pick up may be convenient enough in, say, August but it could be a real pain in the neck as the stores get crowded for the holidays. When Wal-Mart first introduced in-store pick up for the 2009 Christmas season, one commentator said it was “like sending things to Mecca during the Hajj.” Quick delivery could then allow Wal-Mart to hang on to its web shoppers.

Alternatively, Wal-Mart’s in-store pick up success may be all about payment methods. Wal-Mart allows online orders to be paid for at a store. Someone without a credit card can then shop online and pay in cash. Those folks will still opt for in-store pick up even if same delivery is still available.

A final point to make. It seems that Wal-Mart is playing it safe in how it has structured this program. First, it only offers it for a limited number of items. Admittedly, 5,000 is a pretty big number but it is just a slice of what it sells online. Second, it is emphasizing electronics and toys that customers may be in a hurry to get. These will likely also be relatively expensive items in comparison to, say, the apparel items they offer. That suggests that they probably have better inventory control on those items (so they can actually fulfill the order from the store) and that the higher shipping cost can be absorbed and still have a profitable transaction.