The Supply Side: Wal-Mart’s tethering plan opens logistics opportunities

Wal-Mart is a logistics leader that revolutionized the supply chain years ago with its distribution center system. But now that the retail giant is experimenting with small convenience formats and tethering to its supercenters for replenishment, there may be more business opportunities for third party suppliers, according to Kantar Retail.

Dan Sanker, CEO of Santa Monica, Calif.-based CaseStack, said the new formats and tethering opportunities have caught his interest given that his firm already handles consolidation logistics for Wal-Mart, suppliers and other retailers.

Walmart U.S. CEO Bill Simon said in March that the retailer is testing tethering smaller formats to its nearby supercenters in addition to using them for online fulfillment. The retailer is tethering its Walmart to Go in Bentonville – its new convenience store concept – to the supercenter down the street. The Express store in Gentry is tethered to a supercenter in nearby Siloam Springs and the Walmart on Campus at the University of Arkansas is tethered to a supercenter in Fayetteville.

According to Wal-Mart execs, the concept of tethering fits within Wal-Mart’s sustainability plans, which leads analysts to think the concept will be expanded.

Sanker can envision roughly 10,000 square feet of space in a supercenter that is carved out for storing added inventory — a mini warehouse of sorts. He said small trucks could run routes from the supercenter to the small format and for home delivery for online or bulky items.

Tethering several smaller stores to a supercenter will mean the retailer has to figure out ways to store the extra product and then make sure the items get to their final destination, because they won’t be loaded on full semi-trucks coming from the distribution center.

Wal-Mart store associates already have a full slate just handing the normal inventory for their supercenters and tethering will add additional work that could be outsourced to third party logistics firms.

Sanker said tethering gives Wal-Mart an opportunity to share its labor costs. He said his firm already has a software program that helps track products up and down the supply chain, which will be important for suppliers given more possible destinations for their items. He said that software also allows for consolidating orders and pallet customization, which will be important at the store level for orders bound for smaller formats. 

Analysts at Kantar said Wal-Mart is leveraging its physical size to its advantage with this tethering plan. But ultimately the retailer also has to figure out how to best operate in an omni-channel environment, which means managing the different requirements of online fulfillment, at home delivery and free pickup at a nearby location.

Wal-Mart has not provided details about how it will accomplish the tethering plan with entire ecosystems which are being rolled out this year. The retailer answered one question on Wednesday (April 30) when it confirmed a mini-fulfillment center to be built in Bentonville this year for online grocery orders. This concept is grocery only and does not include home delivery, but offers scheduled pick-up times with drive-in service.

Sanker said there is no magic bullet solution for handling the logistics around omni-channel retail, but if Wal-Mart figures out how to use it massive physical scale to its advantage, other retailers will follow.