The cost of Walmart’s e-commerce
Walmart has a long history of driving profits through high sales volumes of low-priced items at thin margins, but not even Walmart’s efficiencies are enough to make money selling groceries online.
“They don’t know when they won’t be losing money on grocery,” said Laura Kennedy, vice president of the retail, sales and shopper practice at Kantar Consulting, noting that Amazon also struggles to drive profitability on e-commerce. “This is not a problem unique to Walmart, of course.”
Walmart is experimenting with ways to make e-commerce fulfilment more efficient, however, through the use of robotics and automated fulfillment centers, and by creating efficient systems for its in-store order pickers. “It just costs them a lot to have somebody walking around the whole store and picking that order,” Kennedy said.
Walmart also has said that as it encourages customers to add more higher-profit items, such as apparel and hard goods, into their grocery baskets, it could help to make grocery e-commerce more profitable.
Lee Peterson, executive vice president of thought leadership and marketing at consulting firm WD Partners, said Walmart to some degree has committed to being an omnichannel leader, and that means spending heavily to capture customers before worrying too much about making money on the business. “I think the thought now is, ‘We just have to do it, and then figure it out,’ which to me is correct,” Peterson said.
“Everybody talks about the cost [of online grocery], but to me the question is, ‘How much does it cost you not do to it?’” he said. “That answers the question of why Walmart is moving so fast. They don’t know yet if it is going to be profitable, but they are not going to just sit there and someday pay for the cost of not doing it.”