Walmart seeks to thwart Amazon with new third-party delivery service

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Hoping to diversify and develop new sources of income, mega-trader Walmart (NYSE: WMT), which made some $ 40 billion in revenue last year, is using that massive scale to launch a new delivery service for small businesses called Walmart GoLocal.

After squashing many smaller retailers by slashing them in terms of price and selection, Walmart is now looking to help them ahead of what is sure to be a busy Christmas season. UPS and FedEx expect to be inundated with deliveries.

This is hardly a selfless effort as the mega-retailer sees the potential to encroach on the lucrative last mile market dominated by its big rival, Amazon.com (NASDAQ: AMZN). Walmart began testing delivery of branded pickup trucks earlier this year when a small fleet began serving the local Arkansas market where the retailer’s headquarters are located.

Image source: Walmart.

Serve a card of new services

The first clue that Walmart intended to go beyond its own ecosystem was when it announced in July that it would sell its e-commerce technology that allows shoppers to purchase items to other retailers. online and pick them up in store. Walmart has started integrating its Marketplace platform with the commerce platform of Adobe, allowing the software giant’s merchants to use the mega-retailer’s cloud capabilities to ensure pickup and delivery to their own customers.

This is reminiscent of Amazon, which sells its “just walk out” payment technology to other retailers and supermarkets. It is possible to make more money by distributing its technological prowess to other companies instead of keeping everything in-house.

During last week’s earnings call, Walmart President and CEO Doug McMillan said, “These are just a few examples of how we are using our assets to develop new businesses within the company. ‘business and create new sources of income and profit. “

Leverage its massive footprint

Walmart has invested billions of dollars in its supply chain in an effort to support its stores and distribution centers.

The pandemic has also benefited Walmart as it has been allowed to remain open as a so-called “essential business” even as many competitors have been forced to close. The company intends to use the advantage it has acquired at the expense of its competitors to widen its gap with them.

This is necessary because Amazon is rapidly reducing Walmart’s lead as the largest US retailer. The e-commerce leader is expected to overtake Walmart as the biggest by 2025, even though most of Amazon’s sales come from third-party retailers.

Walmart executives have revealed to advertisers that it is losing market share in groceries, “the growth engine of the business,” and noted that privately held Instacart is on a nearly equal footing in the market. grocery delivery.

By offering its own delivery services to national accounts and small businesses, while providing them with the technology to have their own effective e-commerce presence, Walmart hopes to maintain its leadership in retail.

A chance to open a new source of income

The coming holiday season could be a big test for Walmart’s new strategy. UPS expects retailer delivery demand to exceed carriers’ capacity by 5 million packages per day during the Christmas season.

While this provides an opportunity for Instacart, DoorDash, Uber, and other third-party delivery services to increase their load, it also gives Walmart the ability to start its own delivery business that can start and immediately generate a return.

The question is whether this can become a significant contributor to Walmart’s overall business. There may be some reluctance to partner up and hand over customer data and information to the retail giant that has already siphoned off so much business from small businesses, but Walmart has the ability to make GoLocal a formidable competitor by undervaluing the competition, which would be attractive to small traders.

GoLocal will also apply significant pressure on existing delivery services which currently struggle to be consistently profitable. Walmart has the financial means to fund a loss-making fulfillment service. So while it might not do much for the bottom line just yet, it could allow the retail giant to gain considerable leverage down the road.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.


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