Walmart has stumbled in recent months under pressure some observers credit to Amazon and an improving economy. In May, the Bentonville, Arkansas-based company and world's largest retailer released a quarterly earnings report that noted a 1.4 percent drop in comparable-store sales in the United States from the previous quarter.
And while Walmart is doing big business online, netting $7.7 billion in online sales in 2012, Amazon is still the undisputed leader. Amazon's sales totaled $61 billion last year, due in part to its extensive and established network of automated warehouses.
The Wall Street Journal recently reported that Walmart has a plan to one-up Amazon at its own game. Does the key to Walmarts digital future lie with its 4,000 physical U.S. stores?
Walmart's Web Problem
Walmart expects to earn $10 billion selling its merchandise online this year. But, while this sounds great on paper, that number accounts for only about 2 percent of the store's total earnings. So, how did Wal-Mart end up in second?
According to the Journal, a culture clash at the company caused its initial eCommerce efforts to fall short. Former company executives said the Walmart.com office in California often found itself at odds with the more profit-driven Arkansas division. Complicating matters, Walmart.com was unable to stick to its five-year plans due to sales that were too low to justify larger investments.
Most notable, though, was the fact that Walmart paid more per parcel than its main rival, spending $5 to $7 to ship a single package compared to the $3 to $4 spent by Amazon. Widening this gap was that most of Walmart's purchases were for low-cost items.
Walmart's New Logistics Solution
To solve this problem, Walmart says it plans to take advantage of its 4,000 stories and 158 warehouses. Walmart estimates that two-thirds of U.S. consumers live within five miles of a Walmart store, meaning that adding these sites to its existing distribution network could greatly reduce shipping costs. Currently, the company is testing the concept in 35 stores, with the goal of pushing this total to 50 by the year's end.
The Future For Walmart On The Web
The Journal notes that while Walmart could likely improve its logistics with this strategy, its hardly a complete solution, as the process of using stores to fill online orders could detract from the customer experience at these locations. Likewise, the idea of using these chains is hardly innovative, it says, as this approach is already in use at select major department stores.
Read the full report here.