A Closer Look At Wal-Mart’s Associate Delivery Program

As Wal-Mart (NYSE:WMT) continues to ramp up its e-commerce efforts, the company is looking at several innovative ways to make online deliveries and reduce costs at the same time. The company is currently testing an “associate delivery program,” which will leverage its nearly 1.2 million employees across its 4,700 stores to deliver packages on their way home. Employees will have an option to enroll in this program and will be paid extra for these deliveries. The company is currently testing this program in two of its stores. Nearly 90% of Wal-Mart’s customers live within a 10 mile radius of its stores, and using existing employees to deliver packages could enable the company to create a strong delivery network at lower costs. As the company steps up its e-commerce efforts to compete effectively with Amazon, we believe this program – if executed correctly – could lead to significant cost savings for Wal-Mart, and also provide added convenience for customers.

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Lower Costs, But Execution Could Be Challenging

Shipping costs account for a significant portion of an online retailer’s expenses. Amazon is looking to control its logistics network as the company faces a significant increase in shipping costs. Similarly, Chinese e-commerce giant Alibaba has invested significantly in logistics, which it considers a major pillar of e-commerce growth. High shipping costs, coupled with free shipping offers, can put substantial pressure on the margins of online businesses, and therefore companies are constantly looking for innovative ways to reduce these costs. While Amazon is looking to build its own fleet of trucks, Wal-Mart is looking to resolve the last mile delivery challenge fairly uniquely. The associate delivery program could help the company reduce delivery costs as its e-commerce sales increase; however, compensating employees reasonably for the additional work will be crucial for the success of this program. Currently, there is not a lot of clarity with respect to the compensation these employees will receive, what assurances customers will get in terms of delivery timing and other factors. A motivated and effective fleet of employees making these deliveries will be crucial for the success of this program.

Wal-Mart is the biggest player in the U.S. grocery market, with more than a 17% share in the food and beverage retail segment. As the company steps up its efforts to take on Amazon, which itself has strong ambitions in the grocery segment, fast and cheap delivery can help the company gain a competitive advantage (read How Wal-Mart Plans To Fend Off Competition From Amazon). Reducing delivery costs and increasing delivery speed through innovative measures such as the current associate delivery program can help the company, assuming it is able to execute this initiative effectively.

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