Walmart Lockers: Not As Dumb As They Seem

by Alyssa Oursler | March 27, 2013 1:17 pm

Walmart Lockers: Not As Dumb As They Seem

Amazon (NASDAQ:AMZN[1]) might be trying to run away with its lead in the e-commerce world, but Walmart (NYSE:WMT[2]) isn’t going down without a fight.

If you count stealing Amazon’s strategy[3] as a fight, that is.

Amazon, which did $61 billion in sales last year, recently debuted lockers[4], used to hold goods ordered online until a shopper wants to pick them up. Now, Walmart — which is on track to sell $9 billion, or around 15% of Amazon’s total, online this year — is trying the same thing.

My initial reaction: “What’s the point?” But after a closer look, I actually think the move is pretty darn savvy. Here’s why:

The Physical Presence

To start, let’s consider why Amazon got lockers in the first place: The company lacks a physical presence. Thus, lockers were a great solution to two common issues: high shipping costs and security problems (if you’re not home when a package isn’t delivered, for example).

Walmart’s story is different.

In articles describing the lockers, people toss out data that makes the concept sound silly. Neil Ashe, president and chief executive[5] of Walmart Global eCommerce, said “No one else has 4,000 points of distribution within a stone’s throw of every customer.” Reuters noted[6] that “Two-thirds of the U.S. population live within five miles of a Wal-Mart store.”

See, Walmart doesn’t just have a physical presence, but an enormous one. So, you can already sit at a computer, place an order, get an email or text when its ready[7], and then pick it up at your nearest (which is likely pretty near) Walmart store. So the lockers seem both insignificant and unnecessary … at first.

But then you remember: We’re lazy! Sure, your closest Walmart might be only five or 10 minutes away … but for some Americans, that’s still too far. And considering the huge size of Walmart stores — and the problems it has had squeezing its big-box format into the city[8] in the past — dropping a few lockers to fill in the gaps seems like a great extension of one strong, in-place network.

Also, consider this anecdote: My mom hates shopping, and only focuses on getting the cheapest prices possible when she is forced to venture out. For her, the “experience” of a store[9] or the act of browsing aren’t important at all. But despite the cheap prices, she finds the Walmart experience so unenjoyable — crowded, messy, long lines — that she still never shops there.

So … the lockers have another perk: They could appeal to customers who love bargains but hate the store itself — especially because of the company’s strong branding. After all, when people think Walmart, they think deals.

If the company can lure in the third of the population not next-door to a store, or make it a little more convenient for someone who doesn’t want to deal with in-store pick up … hey, why not?

The Move to Mobile

The addition of lockers can’t be looked at in a bubble. Instead, it’s part of a larger emphasis on mobile, which includes many other initiatives such as WMT’s in-store app. As Ashe put it, Walmart is trying to build “best-in-class e-commerce” with technology as innovative and sexy as Apple (NASDAQ:APPL[10]).

Besides the fact that trying to be like Apple doesn’t always work out for retailers (just ask Ron Johnson[11]), the emphasis on mobile seems a bit out of character for the discounter. The reality is that, even compared to fellow discount retailer Target (NYSE:TGT[12]), Walmart’s customers have lower income levels — an average range of $30,000 to $60,000 per household[13], according to CBS.

Considering such an income bracket, are these folks active users, or even owners, of smartphones?

Well, as it turns out, age is actually a bigger influence[14] of smartphone ownership than income. Plus, the smartphone penetration rate is up to 54% and growing. So building an appealing mobile experience makes perfect sense in the long-run because today’s smartphone users could become lifelong Walmart users if the company keeps things fresh … as it has been working to do.

Bottom Line

Of course, we do have to remember that the brick-and-mortar behemoth does more than $465 billion a year in sales, making it the largest store in the world. Thus, the company’s $9 billion in online sales isn’t just measly compared to Amazon’s … it’s less than 2% of its own total revenue.

It hardly seems likely that tossing a few lockers will do more than make a small ripple in a giant pond. But if e-commerce is indeed “the future,” Walmart is smart to move past the status quo.

As of this writing, Alyssa Oursler did not own a position in any of the aforementioned securities.

Endnotes:
  1. AMZN: http://studio-5.financialcontent.com/investplace/quote?Symbol=AMZN
  2. WMT: http://studio-5.financialcontent.com/investplace/quote?Symbol=WMT
  3. stealing Amazon’s strategy: http://techcrunch.com/2013/03/26/walmart-follows-amazons-lead-starts-testing-locker-delivery-in-retail-stores/
  4. recently debuted lockers: http://investorplace.com/2012/08/7-things-to-know-about-amazon-lockers/
  5. president and chief executive: http://www.mercurynews.com/business/ci_22880764/wal-mart-offer-lockers-store-pickup-online-orders
  6. Reuters noted: http://www.reuters.com/article/2013/03/26/net-us-walmart-ecommerce-lockers-idUSBRE92P0WT20130326
  7. get an email or text when its ready: http://www.walmart.com/cp/Pick-Up-Today-Help/1072691#297797
  8. problems it has had squeezing its big-box format into the city: http://www.nytimes.com/2010/12/13/nyregion/13walmart.html?_r=0
  9. the “experience” of a store: http://investorplace.com/2013/03/wmt-or-tgt-look-to-gdp-for-a-hint/
  10. APPL: http://studio-5.financialcontent.com/investplace/quote?Symbol=APPL
  11. ask Ron Johnson: http://investorplace.com/2012/09/dear-j-c-penney-dont-be-stupid-jcp/
  12. TGT: http://studio-5.financialcontent.com/investplace/quote?Symbol=TGT
  13. average range of $30,000 to $60,000 per household: http://www.cbsnews.com/8301-505145_162-57551520/walmart-and-target-a-tale-of-two-discount-chains/
  14. age is actually a bigger influence: http://www.nielsen.com/us/en/newswire/2012/survey-new-u-s-smartphone-growth-by-age-and-income.html

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