The Competition Intensifies. Who doesn’t love a good rivalry? In the e-commerce arena, the ongoing power struggle between Walmart and Amazon has dominated the recent headlines of most major media outlets and generated significant industry buzz as a result. While competition between major retailers and e-commerce providers is not uncommon, Amazon and Walmart’s battle continues to escalate as each seeks to outperform the other when it comes to speed-of-delivery, customer experience, and overall quality of service.
A New Era of E-Commerce Expectations. As Amazon and Walmart continue the drive for faster fulfillment and distribution, customer expectations surrounding e-commerce are evolving in-kind. While 3- to 5-day shipping was the industry standard only a few years ago, 60% of industrial buyers today expect 1- or 2-day shipping for their online purchases (1). And as customer expectations increase, every business that offers e-commerce is forced to further optimize their workflows or risk falling behind. But with top companies like Amazon and Walmart investing exponentially more capital to pursue these enhancements, how are small and mid-sized businesses expected to compete?
Why the Rivalry Should Matter to You. While few businesses can match the level of funding sustained by these two industry behemoths, it is still important to understand how Amazon and Walmart are operating within today’s e-commerce environment. Evaluating the specific fulfillment and e-commerce strategies deployed by each company can help businesses determine how to optimize and streamline their own fulfillment workflows, and also help them avoid unforeseen risks.
To shed light on these specific learning points, this article explores Amazon’s e-commerce and fulfillment (FBA) model and some unforeseen pitfalls associated with leveraging these services, while also highlighting how companies can cost-effectively optimize their own e-commerce distribution channels by mimicking Walmart’s new next-day shipping strategy.
Context: There are Undeniable Advantages to Using Amazon’s E-Commerce Platform. Before delving too far into some of the drawbacks to using Amazon, it is worth noting upfront that Amazon’s e-commerce platform is one of the strongest in the world at this time. The functionality is intuitive and friendly, and the site has millions of users accessing it every day. With nearly half of all 2018 U.S. e-commerce traffic coming through Amazon, it’s a very effective channel for small and mid-sized businesses to expand their footprint nationwide or globally. However, while there are obvious benefits to the e-commerce angle, there are several not so apparent drawbacks (particularly on the fulfillment side) that can have severe repercussions for the merchants that sell products on Amazon’s site.
Although there are clear benefits to leveraging Amazon's e-commerce platform, several major drawbacks (particularly on the fulfillment side) can have severe repercussions for Amazon's merchant clients.
Amazon May Use Your Own Data to Outsell You. To illustrate how Amazon might use your own data against you, consider the sample scenario of PedalSpark, a small maker of high-end electric bicycles. As depicted by Harvard Business Review in a recent article, PedalSpark’s products in the pre-Amazon stage were experiencing significant traction. And as their high growth continued, leveraging Amazon to reach more customers and expedite their shipping seemed a logical next step. However, transitioning to Amazon’s platform would have an unforeseen downside.
The problem is that by leveraging Amazon’s services, Amazon gains full visibility and direct access to all data concerning their client’s products, customers, margins, and market potential. And as the growth trajectory of new markets becomes clear, Amazon has the capacity to deploy their own private-label products, at a much lower price point, to target the exact same buyers that their merchant clients are attempting to reach. This strategy has allowed Amazon to build a private-label product portfolio projected to hit $25 billion in sales by 2022 (2). And with full autonomy over the system hierarchy, Amazon’s products are very likely to be promoted above others in searches and queries. The result? While buyers might get access to cheaper goods, Amazon’s merchants can lose significant amounts of business as their clients turn to alternative products.
Amazon is Focused on Customer Deliveries, Not Merchant Inventories. Beyond the risk of data exposure and manipulation, a business that leverages Amazon’s fulfillment centers (Fulfillment by Amazon, or “FBA”) to process e-commerce orders may struggle to maintain adequate inventory levels throughout the year. This is because, while Amazon offers same-day or next-day shipping to customers that purchase items, it can take 2-3 weeks for merchants’ inbound shipments to be received and processed by Amazon’s fulfillment centers. And, merchants rarely have visibility into the status of their shipments during this period. If you’re a small or mid-sized business that keeps limited inventory due to financial or operational constraints, this lack of efficiency on the back end can cause numerous delayed deliveries and an overall dip in customer satisfaction. These issues can go on to massively impact the popularity and demand for your products, especially if you experience frequent stock outages or receive negative customer reviews.
Although Amazon is working to boost the efficiency of their fulfillment service in this regard, merchants need to recognize ahead of time that Amazon is an e-commerce provider before they are a fulfillment center. As such, their inventory and warehouse management features are not as robust or cost-effective as some of the more specialized fulfillment providers operating within the market today.
While Amazon offers same-day or next-day shipping to customers that purchase items, it can take 2-3 weeks for merchants’ inbound shipments to be received and processed by Amazon’s fulfillment centers.
Be Wary of the Same-Day Shipping Frenzy & Be Rational About the Costs. As a final note of caution, it is important for businesses to recognize that using Amazon’s fulfillment services may not be as cost-effective as leveraging their e-commerce functionality. While many of the campaigns launched by Amazon seek to emphasize the necessity of their same-day shipping services, merchants need to think rationally about the costs of such a service compared to the benefits. Today, companies that leverage Amazon’s FBA service are paying hefty fees for warehousing and distribution. But given that only 15% of e-commerce buyers in a 2018 study wanted same-day or next-day shipping (3), paying extra for a feature that few buyers are demanding might not be worth it.
Instead, data shows that delivery within one or two days is considered ideal for the broad majority of e-commerce buyers, especially if it is more affordable. In fact, 74% of buyers recently indicated that the cost of shipping was more important than speed of delivery, within reasonable timeframes (4). And given that there are a number of e-commerce fulfillment providers that offer 1- 2- day shipping services at comparatively lower rates, it is strongly recommended that businesses relying heavily on Amazon for fulfillment do some additional research to determine whether the costs justify the benefits.
Data shows that delivery within one or two days is considered ideal for the broad majority of e-commerce buyers, especially if it is more affordable.
Walmart Introduces Next-Day Shipping for Select E-Commerce Purchases. While two-day delivery continues to be a leading practice for both B2B and B2C e-commerce transactions, as Walmart CEO Doug McMillon suggests, same-day shipping is the “final frontier.” However, data has shown that nearly 2 in 3 of today’s industrial B2B buyers remain satisfied with one-or-two-day shipping on their purchases (5), and 3 in 4 buyers prioritize shipping cost over speed (6). Walmart has taken these insights to heart in their newest go-to market strategy, having just announced free next-day delivery on a select number of online products. This comes only a year after introducing free two-day shipping on over 2 million e-commerce products as a standard service. But while the offering alone is intriguing, perhaps the most interesting component of this service is the distribution strategy Walmart will deploy it through.
Walmart Leverages Six Fulfillment Centers Instead of 4,700 Stores for Next-Day Shipping. As of June 2019, Walmart operates over 4,700 stores across the United States. When analyzed collectively, their storefronts are located within 10 miles of 90% of all U.S. consumers (7). So why has the company instead decided to utilize just six fulfillment centers to process next-day e-commerce orders? According to their e-commerce CEO Mark Lore, leveraging the fulfillment centers as opposed to their stores is more cost-effective and efficient from an operational perspective. This may come as an eye-opening statement for many businesses, especially considering Walmart’s storefronts outnumber these fulfillment centers by a ratio of 783-to-1 and are often positioned much closer to the end customer.
What Makes Walmart’s Fulfillment Centers so Cost-Effective? While it may seem strange that leveraging a nationwide network of 4,700 stores is a less efficient shipping model than using six fulfillment centers, there is a strong rationale behind this methodology. To start, Walmart’s fulfillment centers specialize exclusively in picking, packing, and shipping e-commerce orders. They can receive online order information, process those orders, and deliver outbound shipments in a fraction of the time it would take an actual store. After all, Walmart’s storefronts are designed to provide in-person customers with an optimal shopping experience. If these stores attempted to fully accommodate e-commerce buyers, they would have to onboard specialized logistics staff to cope with new workflows and technologies, and also build out additional warehouse space to contain more inventory. These adjustments would be time-consuming and costly to implement, especially when compared to leveraging a fulfillment center that is specifically designed to handle e-commerce deliveries.
Strategically Prepare for E-Commerce Evolution. If there were a primary takeaway to be drawn from the Walmart and Amazon rivalry, it’s that businesses need to become more strategic with how they structure their e-commerce distribution network. With 87% of shoppers beginning their product search online and 53% preferring to make online purchases (8), the importance of optimized e-commerce fulfillment continues to rise. And as companies like Amazon and Walmart continue pushing the envelope for faster distribution and delivery, other companies will be forced to follow suit. But while very few businesses have the resources available to a giant like Walmart, the fulfillment methodology they are applying can be adopted by virtually any company today.
With 87% of shoppers beginning their product search online and 53% preferring to make online purchases, the importance of optimized e-commerce fulfillment continues to rise.
Know When & Where to Outsource Your Fulfillment. As on-demand fulfillment providers like Ware2Go increasingly penetrate the market to offer scalable warehousing and distribution services, many businesses that otherwise could not afford or accommodate such functionality now can. For small and mid-sized companies, using an on-demand fulfillment provider that can dedicate their resources to quickly processing and shipping orders takes massive strain off in-house personnel and is often more cost-effective and efficient than leveraging a service such as Amazon FBA.
So, to recap: If you don’t have the time or budget to build your own distribution centers, why not let a specialized provider manage these workflows for you? And if your clients aren’t demanding same-day shipping, why leverage expensive and often clunky services to provide it? Given the broad availability of outsourced solutions on the market today, businesses need to seriously consider what approach best sets them up for success. The answer might surprise them.
1, 5 – “How Online Commerce is Disrupting Industrial Supply.” UPS. Whitepaper. 2017. Web. https://pressroom.ups.com/mobile0c9a66/assets/pdf/pressroom/white%20paper/Europe_whitePaper_v9_LR.pdf
2 – Estimate provided by SunTrust Robinson Humphrey. Analyst Note. 2018. https://www.suntrustrh.com/
3 – “2018 State of Ecommerce Shipping.” Shippo. 2018. Web. https://get.goshippo.com/2018_state_of_ecommerce_shipping
4, 6 – 2015 BizRate Insights Survey. Web. https://bizrateinsights.com/resources/how-important-is-same-day-delivery-to-shoppers/
7 – “Playing to Its Strengths: Why Walmart Must Focus On Its Stores & Logistics.” Forbes. 2018. Web. https://www.forbes.com/sites/brittainladd/2018/09/09/playing-to-its-strengths-why-walmart-must-focus-on-groceries-stores-and-logistics/#3f269d41e064
8 – Shopper First Retailing. Survey. Salesforce & Publicis.Sapient. 2018. Web. https://www.salesforce.com/blog/2018/08/digital-shopper-first-retail-report-research.html