Shares in retail giant Walmart (WMT) were higher today on reports that it is turning its stores into mini-warehouses to neutralize the logistics power of e-commerce rival Amazon (AMZN).
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According to a report in the Financial Times, Walmart is testing a system where third-party sellers’ goods are stored in the storage space at the back of its stores alongside its own inventory. It is understood that a pilot program has been launched at several stores in the Dallas area.
At the moment, Walmart’s online marketplace offers approximately 500 million products from external merchants. These merchants retain ownership of their goods until they are sold and pay Walmart commissions and logistics fees.
Traditionally, these sellers store their inventory in their own warehouses or Walmart’s distribution centers. Orders shipped from Walmart warehouses typically arrive within one to two days, while orders shipped directly by the sellers may take longer.
The aim of the pilot, it appears then, is to try and match Amazon on delivery speed, particularly same-day.
Close to Customers
By keeping third-party products in its own stores, this will:
- Enable it to pick, pack and deliver much faster than it does at the moment. It turns those thousands of Walmart stores into, effectively, a distributed fulfillment network.
- Plays to its strength of having its physical stores near to most of its customers. Indeed, in the U.S. around 90% of the population live within 10 miles of one.
- This could help Walmart take out one of Amazon’s key advantages – namely its huge warehouse and logistics network edge.
Walmart’s well-publicized technological development has paved the way. This includes automating its warehouse operations so that when goods arrive at the store, they are pre-sorted by shelves, freeing up additional space in the back storage areas. It is also using artificial intelligence to determine which marketplace products each store should stock based on local demand.
Is WMT a Good Stock to Buy Now?
On TipRanks, WMT has a Strong Buy consensus based on 28 Buy and 2 Hold ratings. Its highest price target is $150. WMT stock’s consensus price target is $138.85, implying an 8.39% upside.
