The Supply Side: Walmart doubles down efforts to grow e-commerce

Walmart has announced several new services and made some executive changes in recent weeks to boost e-commerce sales, expand third-party services for increased revenue streams, and try to close the gap with Amazon.

Despite the strong double-digit growth in e-commerce sales (up 37% last year), Walmart continues to lag behind Amazon in several metrics. As ranked by eMarketer, Amazon’s sales comprised 38.7% of total e-commerce sales last year. Walmart was second with 5.3% of the market share and eBay ranked third with 4.7% of the market.

Amazon U.S. also sells more than 129 million products online, compared to Walmart.com, whose inventory is an estimated 80 million but continually expanding. More than 50% of Amazon’s sales are derived from third-party sellers, and now Walmart is looking to grow its third-party sellers as well.

Walmart just announced a new fulfillment service for third-party sellers that looks very much like Amazon’s model at a glance. Walmart Fulfillment Service (WFS) is designed to provide sellers the opportunity to store inventory at Walmart fulfillment centers for an additional, undisclosed cost.

When a customer places an order on Walmart.com, WFS picks, packs and ships the item directly to the customer on behalf of the seller. WSF also handles all customer support and returns. Walmart said it would provide complete transparency to the seller on the end-to-end process. Walmart said third-party sellers who opt in to the program would have more time to focus on increasing sales, while also having the confidence the orders are delivered quickly with customer service support.

Walmart said the new program also includes the free and easy return program it enacted last year that allows customers to return online orders to stores. Walmart said the items that qualify for WFS must be nonperishable and have no regulatory tracking requirement. Products must also weigh 30 pounds or less and be shipped to Walmart fulfillment centers. The maximum dimension of the product is 25 inches by 20 inches by 14 inches, according to the retailer’s website.

Walmart said the best suitable products for the program include those that are competitively priced to win and those with outstanding page content and imaging. Walmart said products that have multiple offers on Walmart.com might not be a good fit for the program.

In 2020, Walmart said sellers are responsible for shipping their inventory to Walmart fulfillment centers, but next year the company plans to offer inbound transportation logistics to these sellers.

“We built this service with sellers, for sellers, and are proud to offer our partners transparent and simple pricing that’s one of the lowest on the market,” said Jaré Buckley-Cox, vice president, Walmart Fulfillment Services, Walmart eCommerce. “WFS is designed to help sellers generate more profitable sales of their inventory at scale while growing their business with Walmart Marketplace. With WFS, they’ll gain a trusted partner that cares about their business, and their customers and benefit from a more personalized experience. And as for customers, they’ll enjoy a larger assortment of great brands and products along with fast shipping, easy returns and dedicated customer service.”

Walmart has been testing the service with Netrush, which works with multiple third-party sellers to navigate sales on Walmart.com and as well as Amazon.

Raj Sapru, chief operating officer at Netrush, said, “as more shoppers start to use Walmart’s online marketplace, it’s important to meet shoppers where they are. It’s a priority to us as a retailer that we provide a premium experience that matches the quality of the products we sell. WFS offers that experience.”

Sapru said the initial results with WFS have been promising, and he’s looking forward to seeing what tools and features Walmart will release to make the service easier for third-party sellers.

“We feel that WFS will position us for success as Walmart continues to drive traffic to the service,” he added.

His advice for third-party sellers exploring the new option is to understand what strategy they want to achieve. He said Walmart has the right cross-functional team in place to address seller needs. He said open a discussion with the Walmart team about objectives and realistic results because “the more you put in, the more you will get out.”

Walmart also worked with Pattern, which represents third-party sellers on multiple retailer sites. George Hatch, director of marketplaces at Pattern, said WFS created incentives for Pattern’s brand partners to begin thinking about expanding to Walmart.com.

“Opportunities to get in early on initiatives like this don’t come around often, and Pattern has been very pleased with the way WFS has performed for our brand partners thus far,” Hatch said.

Deborah Weinswig, the founder of Coresight Research, said Walmart is offering the service because it needs to scale its online business further to make it profitable. Supporting third-party vendors helps to do that.

“Walmart’s new offering also helps it compete more effectively with Amazon, and the third-party offering may not be as robust as Amazon’s, but it is supported by a fleet of brick-and-mortar locations across the country that Amazon lacks,” Weinswig said.

She said with the service, Walmart will have more control over the customer experience. It can increase the number of packages with next-day or two-day delivery. It will have more visibility in warehouses, so it knows if it’s running low on an item. It can standardize the quality of packing and shipping, so items don’t arrive damaged or broken. She sees it as a way to help Walmart better compete against Amazon.

Keith Anderson, vice president of strategy at Profitero, said Walmart continues to play catch-up to Amazon, and this strategy is no different. He doesn’t think a large number of Amazon-only sellers will make the jump to Walmart, but he expects plenty of suppliers will continue to do business with both retailers.

Anderson thinks it’s smart for Walmart to use physical assets, which include stores to help grow online-only sales. He said online commerce is complicated and expensive, but Walmart does have assets that can be leveraged to bring costs down. He also agreed that offering the service provides additional revenue streams for Walmart.com because there will be charges for logistics costs and storage fees associated with WFS.

He said as Walmart also continues to grow its advertising sales, there will be opportunities for Walmart to increase revenue for ads sold to third-party marketplace vendors seeking promotional advantages.

WHY NOW?
Naysayers regarding the moves by Walmart include Annibal Sodero, assistant professor of supply chain at Ohio State University. Sodero said he’s been asking why Walmart didn’t previously offer the service. He said the retailer is getting to it “really late.” He said Walmart is in front of millions of customers each day, and smaller sellers would like to benefit from that exposure.

Sodero said Walmart has the opportunity to improve conditions for third-party sellers and try to win favor with those disgruntled by Amazon over the years. But he said Amazon still has a massive lead over Walmart.com as the place where 60% of customers start their online search for products.

Sodero agrees that the profit stream associated with WFS is also the reason the retail giant has opted to pull the trigger now as it seeks to cap e-commerce losses. He said Walmart also has the potential to gain some additional category insights as they will be handling the fulfillment and assessing customer demand.

“Amazon over the years used this data to then go out and invest into private brands that in some cases now control certain categories,” Sodero said. “This has been a complaint of some third-party sellers on Amazon. Walmart will no doubt benefit from the data it collects from this service, regardless of its investment in private brands.”

The timing for why Walmart has chosen now to unveil this survey remains unknown, but analysts said Marc Lore’s mindset for the business has not changed in the past four years. Lore, CEO of Walmart U.S. eCommerce, has been focused on trying to slow down Amazon’s lead in the pure-play online world.

Anderson said as Amazon has continued to carve out the e-commerce lead, Walmart has become the omnichannel leader in the U.S.

Now it looks like Walmart is again focused keenly on growing online sales outside of grocery, which is consistent with Lore’s long-range plan.

Sodero said this wouldn’t be a slam dunk for Walmart as Amazon is a fierce competitor. Less than a week after Walmart unveiled WFS, Amazon announced it would be lowering the fees for third-party sellers by 30% for products sold outside its marketplace. The reduced costs go into effect on April 1.

Analysts said the move to cut fees was no doubt a response to Walmart’s new services as well as increased logistics competition from FedEx and UPS.

Walmart also recently promoted Jamie Iannone to the chief operating officer for Walmart U.S. eCommerce. In this role, Iannone will report to John Furner, CEO of Walmart U.S, and Lore. Iannone will oversee Walmart’s e-commerce groups, including the retailer’s tech incubator and third-party marketplace.

Iannone previously served as CEO of SamsClub.com, overseeing membership and technology. Megan Crozier has assumed the role vacated by Iannone at Sam’s Club.

Walmart said Iannone would help “build an even stronger online business that seamlessly integrates across all teams and channels.”

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