About ecommerce distribution space race
Source: pmwpl.com
Recently has been reported how Amazon has surpassed Walmart in terms of US distribution capacity. Some have even argued that the bigger distribution center capacity makes sure that Walmart can’t compete with Amazon.
One has to wonder whether the amount of distribution center space is the crucial number to compare Walmart and Amazon?
They are after all two very different kinds of companies.
Food vs non-food retailing & perishable vs non-perishable
Where Amazon approaches retailing and the online channel from the centralised warehouse (or fulfilment center) and home delivery perspective, Walmart is a company focused around customers coming into the stores.
Amazon is focused on selling selling non-food and non-perishable products, but 58% of US revenue from Walmart & Sam’s Club come from groceries.
In the marketplace model of Amazon, it is a very smart move to invest heavily to the distribution network of fulfilment centers. It generates the flywheel effect as more space available, Amazon is able to offer the third party merchant better logistics services. This drives even more merchants on to the Amazon platform enabling the company to charge higher fees and enabling again further investments to the fulfilment network.
Thus, for the traditional non-food next day delivery ecommerce orders, the fulfilment center is a logical investment. However, for more perishable products and faster deliveries, store network is more logical place to pick and deliver the orders. Even Amazon does that with Amazon Fresh in many places.
How does Walmart compare in terms of the store network?
When one takes into account stores, the comparison between Amazon and Walmart becomes very different. Walmart has been working hard to utilise the store network to pick the orders. Customers can then choose whether they pick up the orders or whether they are delivered. This is the way Tesco has built it’s vast online grocery business in the UK. Currently online is almost 15% of Tesco’s revenues.
Walmart store network (Distribution Centers not included) dwarfs the entire network of Amazon properties (physical stores & data centers included, offices excluded). This illustrates quite well how big advantage the stores are for Walmart. They allow the company to offer different service options (home delivery, quick delivery, click & collect) with perishable products.
The big question is how to make the picking as efficient as possible and enable the right assortment. The size of the assortment is not something that Walmart should try to compete with Amazon. However, it can differentiate with the focus on perishable products and delivery options.