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Don’t waste another dime on bloated channel reporting and vanity metrics.
Don’t waste another dime on bloated channel reporting and vanity metrics.
The company is planning four new fulfillment centers that will enable next-day or two-day shipping.
Welcome to Near Future. In this weekly feature, The Current spotlights innovations powering the next wave of commerce.
The future of Walmart fulfillment centers will be automated.
That’s the message from the company’s announcement Friday that it will open four new fulfillment centers over the next three years. Employing over 4,000 associates, the centers will be located in Joliet, Illinois, McCordsville, Indiana, Lancaster, Texas and Greencastle, Pennsylvania.
These “next generation” fulfillment centers will combine “people, robotics, and machine learning,” a blog post from SVP of Innovation and Automation David Guggina.
Partnering with Knapp Technologies, Walmart said it cut a manual 12-step process down to five steps with automation. Walmart outlined this process:
In the meantime, it uncovered advantages as it worked this out at a facility in Pedricktown, New Jersey. For one, it cuts down on footsteps as well as phases of the process. Without the automated system, associates would have walked up to nine miles per day as they picked items from multiple floors of spread-out shelving. Now, the machines retrieve it.
There is also more space. With the new centers, Walmart will be able to double storage capacity, and double the number of orders it can fulfill.
In turn, the system promises to increase productivity. Walmart estimates that associates can assemble up to four orders at once, and send packages for shipping in less than 30 minutes after the customer clicks “order.”
This is all driving at a key outcome: fast delivery to a wide swath of the United States.
“Most impressively, these four next generation FCs alone could provide 75% of the U.S. population with next- or two-day shipping on millions of items, including Marketplace items shipped by Walmart Fulfillment Services,” Guggina wrote.
These fulfillment centers are part of a network. Walmart has 31 existing fulfillment centers. When these four new centers come online, the company said it will be able to reach 95% of the US population with next-day or two-day shipping.
Inside an automated fulfillment center. (Photo via Walmart)
Talk of fulfillment centers, and Amazon quickly comes to mind. That quickly brings up a reminder that the ecommerce giant has its own vast network of 1,199 distribution centers of varying sizes and types, with 287 of those labeled as some variety of fulfillment centers, according to supply chain and logistics consulting firm MWPVL.
So if Walmart wants to compete with the nation’s other retail giant, it may appear that it has a long way to go beyond four new fulfillment centers. But for Walmart, fulfillment doesn’t only take place in warehouse-like settings.
“Our priority is to strategically locate our FCs to pair most effectively with our 4,700 stores and 210 distribution centers,” Guggina wrote. “Together, this system of fulfillment assets is optimized to get orders to customers fast and efficiently.”
Through a partnership with Symbotic, some of those distribution centers will be outfitted with robotics to store, move and pack freight.
Building on its strengths in grocery, the company is increasingly outfitting stores with automation and fulfilling orders from these retail centers, as well. Chief Ecommerce Officer Tom Ward told CNBC this week that 75% of the company’s stores fulfill online orders. After all, there are built in proximity advantages with these facilities. As Walmart often notes, 90% of the US population lives within 10 miles of a Walmart store. More from CNBC:
The company’s vast number of stores allows Walmart to outmatch its competitors, [Ward] said. For example, the retailer can pinpoint the nearest store to a customer who searches online for a printer. Instead of sending the printer from a fulfillment center hundreds of miles away, a team of personal shoppers at the store can pack it, pass that to a delivery driver in Walmart’s network and send a notification to the customer to say the product is on the way.
“It might arrive in a handful of hours after they bought it online, as opposed to a couple of days later,” [Ward] said. “So it’s a transformational experience in terms of speed, which is really hard to replicate without that fantastic footprint that we have.”
Put it together, and the picture of how Walmart’s existing advantages are being put to work for ecommerce begins to fill in. With stores involved, the company can offer same-day delivery to 80% of the U.S. population.
To be sure, this doesn't mean the work of scaling is done. Upgrading fulfillment operations that enable fast shipping is key to meeting customer expectations, but it's just one step to growing the digital side of the business. The shopper experience on the company's app is another area getting a makeover, CNBC reported. To expand the number of sellers offering products, Walmart is building a third-party marketplace. When it comes to getting the packages from the centers to homes, it is working on capabilities like drone delivery, a network of local drivers and a service that delivers groceries right to a customer’s refrigerator. To grow the number of customers regularly taking advantage of these services, it is making moves to bolster the Walmart+ subscription service. Advertising is a part of the equation, too.
Adding new technology and refining processes will help it all work together. The new fulfillment centers offer a sign that the company is putting targeted pieces in place to make that happen.
Focus on existing customers and fulfillment, said analyst Jordan Jewell.
Make operations a pillar.
We’ve lived through a time of economic swings in recent years.
Supply and demand crashed back and forth throughout the peak period of the pandemic, straining systems as it went. There were outward signs of the drama taking place for everyone. For supply, it was empty shelves, the Ever Given ship getting stuck or the massive queue of container ships off of the coast of Los Angeles. On the demand side, charts showing records in the form of exploding ecommerce sales, scores of venture capital dollars invested, and a rising stock market driven by tech and consumer companies were just as plentiful.
Inside the ecommerce businesses that were absorbing the shocks on the front lines, there was another swing that was taking place between growth and profitability, Jordan Jewell, the director of merchant strategy and analyst in residence at enterprise digital commerce platform VTEX, told The Current on the floor of the NRF Big Show 2023.
As Jewell writes in a new VTEX research paper there were three distinct eras of these two important business levers.
Heading into 2020 and the arrival of the pandemic, there was the era of the “old normal." Balance between growth and profits was evenly split. Still, ecommerce was something of a side project to brand and retail leaders during this time, with staffing and funding minimal.
By mid-2020, the era of growth at all costs began, the paper states. Ecommerce sales boomed, and even brick-and-mortar sales grew 5x in 2021 as compared to 2019. With business roaring for everyone, the goal was to get bigger.
But by the middle of 2022, a reset of shopping habits and 40-year-high inflation led to a new era of profitability. Brands and retailers faced a “hangover” when the growth era ended, Jewell said. On top of a pullback in demand, they faced a more expensive digital advertising environment and increased inventory levels.
It was time to look deeper at all of the new capabilities that just came online. As executives dug in, they moved to protect margins.
But again, there was a mismatch. Investments that were made in ecommerce during the growth era didn’t necessarily come with profitability in mind. There’s uncertainty among DTC brands about whether ecommerce is profitable, VTEX found, and a Publicis Sapient study showed that 37% say ecommerce isn’t meaning profit targets.
This presents a question for executives: Where’s the right place to invest now for profitability-minded brands and retailers with more limited options? That’s what Jewell set out to answer through this research. The paper identifies three bets to make:
Loyal and repeat customers keep coming back, and they may even spend more.
Existing customers can also be encouraged to return organically, through email, brand awareness and experience. This all drives profit higher.
That’s especially important to remember at a time when it is becoming more expensive to acquire new customers. There are more brands on social platforms. Privacy changes made targeting less efficient. And even as the proportion of budget spent on new acquisition goes up, returns can diminish.
“With each incremental ad you buy, you're reaching a customer who has a lower propensity to buy from you, because your core customer has probably already been found,” Jewell said.
On the other hand, an existing customer doesn’t require a new ad, and has already shown intent to shop with your brand.
While ecommerce received record investment during the pandemic’s height, brands are still developing capabilities.
VTEX found that 55% of brands are still in the early stages of the omnichannel maturity curve.
They are also still in the process of shifting strategy around these capabilities.
“For many brands and retailers, fulfillment, shipping, inventory and order management is viewed as a cost of doing business, not a core pillar of the business,” Jewell said.
For an example of what a difference adopting the pillar strategy can make, just look to Amazon. The company’s vast logistics network gets orders to customers fast and with reliability. That alone keeps them returning.
“It doesn't matter how good your site looks, it doesn't matter how good your email marketing is, it doesn't matter how good your customer service is. If you don't get a product to a consumer when they expect it, the whole customer experience is broken,” Jewell said. “They're very unlikely to come back.”
On ecommerce sites, don’t just optimize. Think bigger about different kinds of experiences that can help to stand out. Don’t just change the color of a button on your PDP. Add a live shopping video to guide a shopper on the journey. Pay attention to where shoppers are spending their time, such as chat platforms like WhatsApp or TikTok. The experiences they have there are drawing them back, and making it a delight to spend time there.
In the end, brands and retailers must strike a balance between getting the basics right and being bold. It’s not easy to do, especially as more channels appear and the requirements of each become particular, Jewell said.
But it helps to have pillars to base your work around, and that’s what VTEX’s research is seeking to provide.