Amazon has been struggling to decrease the cost and increase the speed of the pesky “last mile,” as it defines the last leg of delivery to the consumer. In fact, they have been working toward owning their own shipping business – SWA, shipping with Amazon –modeled after, and potentially as a competitor of UPS and FedEx. If, and however that works out, SWA will no doubt lower shipping costs and increase the speed of delivery.
Until that happens, Walmart clearly has a huge cost, speed and pricing advantage over Amazon. With some 4500 store locations, (doubling as distribution centers), 90 percent of the U.S. population is within 10 miles of a Walmart store, while only 40 percent of the population is within 20 miles of an Amazon distribution center (NOT doubling as stores). So, Walmart’s nearby store accessibility favors BOPIS (buy online, pickup in store), which eliminates delivery costs. And the same short 10-mile distance will reduce delivery costs using the 4500 stores as delivery points as Walmart integrates the required inventory across its digital and physical platforms according to demand. Amazon currently has neither capability. Their acquisition of Whole Foods, placing Amazon shops within Kohl’s stores and lockers scattered across the country are moves to provide BOPIS and closer delivery capabilities. But Amazon is still thousands of locations and miles behind Walmart.
So, the speed and cost reduction advantages Walmart has over Amazon are obvious. And these reduced costs can also provide them a price advantage. In fact, according to a study by LendEDU, Walmart’s in-store prices are regularly undercutting Amazon’s online prices. Comparing 50 identical products on Amazon and in Walmart’s stores, the Walmart items were 10.37 percent cheaper than Amazon’s. The products range across several categories and the biggest differences were in home goods (33 percent cheaper in Walmart) and kitchen and appliances (21 percent less). The price differences were calculated based on the “in-store” price listed on Walmart.com and the lowest price on Amazon.
Walmart’s pricing advantage is the result of lower costs attributable to BOPIS in its 4500 10-miles-away accessible stores. As they continue to successfully promote in-store pickup, it should further enable a greater price advantage over Amazon.
On the other hand, Walmart must continue to hammer away at perfecting their store delivery capabilities as well as fulfillment from their distribution centers, because Amazon will continue to move at warp speed to grow more of their own BOPIS platforms (i.e. Whole Foods, Kohl’s, lockers and more) and own their own shipping company. Furthermore, as we know from past actions, if Amazon sees a serious strategic threat, such as being undercut by pricing, they can arbitrarily slash prices even as they lose money in the battle.
Speaking of which, Walmart should be wary of Amazon’s pricing moves in their grocery business, the category that accounts for about half of Walmart’s total revenues. Amazon already has a 23 percent price advantage in consumer packaged goods. So how much of a leap is it for consumers who are buying cheaper packaged goods to find it easier to buy their grocery products while at Amazon instead of going to Walmart? And if “easier” doesn’t move the consumer to buy Amazon’s grocery products, how about “cheaper?”
At the end of the day, it seems we always come back to Amazon’s unique competitive advantage: they don’t have to show a profit.
The battle continues. Stay tuned.