Peak season 2019 wasn't a disaster for Walmart, but it wasn't a triumph either. "Tepid" was the word of the day Tuesday when the retailer announced its fourth-quarter and full-year 2019 results at an investor conference in New York City.
"Our top-line growth was better than expected and that put pressure on fulfillment and ship speed, which led us to back off our shipping promises, which left sales on the table," said Marc Lore, Walmart's CEO of e-commerce U.S. With e-commerce sales up 37% for the last fiscal year and another 30% expected this year, the retailer needs more fulfillment capacity for peak order times.
Executives are keeping their fulfillment options open — not committing to a single strategy — but it's clear that stores are going to play a larger role in the future of e-commerce at Walmart going forward.
"We expect to make a lot of progress and picking [general merchandise] in-store during the course of the year," said CEO Doug McMillon.
With such an extensive store network, analysts have long been confident that stores would play a role in e-commerce orders for Walmart. But the company has been less demonstrative about employing that strategy than competitor Target, the executives of which vociferously defend the practice. With fulfillment speed a top priority since Amazon threw down the one-day gauntlet last year, a dense store network is an undeniable advantage.
"Our existing footprint is already within 10 miles of 90% of the population. We have forward-deployed inventory, which is the really expensive part," Lore said. (Inventory staging has indeed been a major cost driver in Amazon's shift toward one-day Prime shipping.)
Delivery speed will continue to be a focus for Walmart, enabled by in-store picking. Still, the company doesn't think of stores as fulfillment centers and is keeping an eye on the effect of order picking on the in-store experience. With grocery pickup one of its fastest-growing channels, some level of volume manipulation is already in place. Walmart uses pickup time slots to spread out traffic in the parking lot and picking traffic in stores. It is also testing picking in stores after they're closed.
Part of not committing to a single fulfillment strategy is imagining what a true omnichannel fulfillment strategy would look like — bringing customer and store supply chains together as one channel.
"We have regional distribution centers that supply stores and full truckload. Could you move product and full truckload from fulfillment center to our DC to the store and then ride the rails of the last mile delivery to someone's home where we're already delivering groceries?" asked Lore, describing the company's thinking on the subject as "fluid."
No matter the fulfillment method, speed is an ongoing concern for Walmart in 2020 and if Amazon is any proof, speed does bring expense. Walmart launched free next-day delivery in 2019 and though the e-commerce business has never been profitable, upping the ante on speed brought analyst questions. The retailer expects e-commerce losses to be flat or slightly lower in 2020 than 2019, as fulfillment costs improve. But the company is purposefully not focused on margins — choosing instead to increase profits with volume.
"I don't think there is necessarily a place where we rest on gross margin, I think we're constantly going to be trying to find a way to give a better value to customers," said McMillon. After all, if the company can get to a point where it tacks on non-grocery purchases to a grocery delivery orders, said Lore, it presents next to no additional fulfillment cost.