Why Wal-Mart May Build Floating Warehouses

The battle between Wal-Mart (NYSE:WMT) and Amazon is heating up, as the latter is looking to expand its physical presence and the former is increasing focus on its e-commerce initiatives. In Q2, Wal-Mart’s e commerce sales grew by 60% year on year, with much of this growth coming organically through walmart.com. The online grocery business is growing rapidly for the company, and Wal-Mart is leaving no stone unturned to boost its e-commerce initiatives. Recently, Bloomberg reported that Wal-Mart had filed a U.S. patent for floating warehouses that can make deliveries using drones. Amazon was granted a somewhat similar patent in April 2016. Wal-Mart’s effort towards developing a faster delivery system similar to Amazon’s further indicates that the company is gearing up to take on the e-commerce giant in the retail landscape.

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Faster, Cheaper Last Mile Delivery Is A Challenge

While price is the key driving factor for online shopping, customers also prefer faster delivery options without additional costs. This is pushing e-commerce businesses to find delivery solutions which are cheaper and provide the convenience of quicker delivery. Amazon is experimenting with “Instant Pick-Up” to provide snacks, electronics and other goods quickly at designated pick-up points once they are ordered online, while Wal-Mart has installed self-service kiosk towers at its stores for faster pick up.  However, delivering products (especially essential grocery items) to the homes of consumers quickly and at a low cost remains a challenge, and a drone-based solution could be the answer. Wal-Mart’s investment in this technology could help it meet this challenge and manage delivery costs at the same time.

Competing In The Grocery Segment

The grocery space is a $600 billion market in the U.S., and surveys suggest that more than 70% of Americans will engage in online food shopping within the next ten years. Optimistic estimates put online grocery sales growing at a CAGR (compounded annual growth rate) of 20% between 2016 and 2025. As Amazon is looking to capture a greater share in this market, Wal-Mart is ensuring that it does not lose out on the convenience front, which is likely to be a key driver in the space. Groceries are a  key revenue driver for Wal-Mart, and a quick and convenient solution to deliver essential items to customers’ doors could help the company significantly in growing revenues from this segment.

We believe Wal-Mart’s initiatives in the e-commerce space to keep pace with Amazon’s technology will be crucial in its long term growth.

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