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Warehousing & Fulfillment

eCommerce Distribution Centers May Decide Amazon & Walmart’s eCommerce Rivalry

Warehousing & Fulfillment
March 19, 2021
8 min read
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With a growing subscriber base, Walmart+ is beginning to seem like a real contender to take on Amazon Prime. The two ecommerce giants are going head to head to offer the greatest variety of product with the fastest service, and their ecommerce distribution center strategy may be the deciding factor in who makes it to the top.

An Introduction to Amazon & Walmart’s Rivalry

Walmart has long been vying for a portion of Amazon’s ecommerce market share. With programs like its Shopify integration, which allows Shopify merchants to list on Walmart Marketplace directly through their Shopify store, the retailer has been  expanding its ecommerce marketplace offerings.

The announcement of their subscription program, Walmart+, in September of last year signified a direct competition with Amazon Prime. Many industry experts felt that, although less expensive than Amazon Prime, because Walmart+ lacked the sku profile or added streaming benefits of the Prime membership, it was very unlikely to pose a serious threat to Amazon. However, 5 months after the program’s inception it had an estimated 7.2 to 8.4 million subscribers and was accounting for 30% of ecommerce grocery orders.

W‍hile Amazon may have long set the standard for ecommerce fulfillment, Walmart is clearly a major competitor in this space as well. Walmart+ initially offered free 1 to 2-day shipping after a spend threshold of $35, but soon dropped the minimum spend to be in direct competition with Prime’s delivery options. It’s no secret that Amazon has invested significantly in their fulfillment network in recent years, but Walmart’s new approach to ecommerce distribution centers may have them more poised to effictively meet rising ecommerce consumer demand.

A New Era of eCommerce Expectations. As Amazon and Walmart continue the drive for faster fulfillment and distribution, customer expectations surrounding ecommerce are evolving in-kind. While 3- to 5-day shipping was the industry standard only a few years ago, 60% of industrial buyers today expect 1- or 2-day shipping for their online purchases (1). And as customer expectations increase, every business that offers ecommerce is forced to further optimize their workflows or risk falling behind. But with top companies like Amazon and Walmart investing exponentially more capital to pursue these enhancements, how are small and mid-sized businesses expected to compete?

Why the Rivalry Should Matter to You. While few businesses can match the level of funding sustained by these two industry behemoths, it is still important to understand how Amazon and Walmart are operating within today’s ecommerce environment. Evaluating the specific fulfillment and ecommerce strategies deployed by each company can help businesses determine how to optimize and streamline their own fulfillment workflows, and also help them avoid unforeseen risks.

Ahead we’ll look at how the 2 companies’ very different ecommerce distribution centers affect their overall fulfillment strategy and which model is most likely to shape the future of ecommerce delivery.

Amazon’s Growing eCommerce Distribution Center Network 

Nearly half of eccommerce traffic comes through Amazon, making it a very effective channel for small and mid-sized businesses to expand their footprint nationwide or globally. Between its own Private Label brands and its growing roster of third-party sellers, Amazon Prime offers over 3 million skus with free 1 to 2-day delivery. For third-party sellers, Amazon fulfillment can be difficult to navigate, especially when deciding whether fulfill orders themselves or use Amazon’s robust fulfillment network. That question ultimately comes down to the level of control merchants want to maintain over their business and how they want to leverage Amazon as part of a multichannel ecommerce strategy.

Hydrogen water brand, HyVIDA learned quickly that while efficient, Amazon’s ecommerce distribution centers didn’t handle or package their product with the proper care to prevent damages in transit. Damages led to negative Amazon reviews from customers who otherwise loved their product but were frustrated by regularly receiving dented cans. HyVIDA knew that to provide the delivery experience their customers expected, they would have to move their fulfillment from Amazon’s network to an outsourced fulfillment provider. The benefits to their brand were two-fold. Not only did they begin to garner more positive reviews on Amazon, but they were also able to connect their Amazon fulfillment to their other sales channels, simplifying their internal processes. Additionally, they were able to customize the packaging for their Amazon shipments, including promotional items like a discount code for an order on their ecommerce site, which directed sales to that more profitable channel.

Looking for an Amazon fulfillment solution? Chat with one of our in-house experts.

However, for Amazon’s own private label brands, and dedicated Fulfilled by Amazon (FBA) sellers, there’s no doubt that Amazon’s ecommerce distribution centers and fulfillment network run like a well-oiled machine. With over $60 billion invested in the infrastructure since 2014, it’s no wonder that they have established themselves as the industry pace car for fast shipping guarantees. However, some have questioned the profitability of their fulfillment network as Amazon posts increasingly higher shipping and delivery costs each year. Their 110 US ecommerce distribution centers may be out-pacing competitors, but Walmart’s network, though originally optimized for brick-and-mortar sales, may actually be better positioned for profitable ecommerce fulfillment.

Walmart’s Established eCommerce Distribution Centers

When COVID-19 shutdowns pushed shoppers online, many supply chains (including Amazon’s) were strained. Frustrated consumers found many of their usual brands were out of stock or delayed and began looking for alternatives. In fact, a 2020 consumer survey showed that 55% of consumers began shopping from retailers they had previously never purchased from before the pandemic. This opened the door for smaller brands, especially through channels like Walmart Marketplace.

Walmart saw ecommerce sales spike by 79% during the third quarter of 2020 without experiencing the level of shipping delays as Amazon. They, like other retail giants, found that while traffic was down in their brick-and-mortar stores, they could cut fulfillment costs by using their storefronts as ecommerce distribution centers and store associates as fulfillment labor. Walmart’s already vast network easily transitioned into a fulfillment network, and with 90% of the US population living within 10 miles of a Walmart store, their de facto distribution centers turned out to be perfectly situated to meet ecommerce delivery expectations. 

Walmart’s eCommerce Distribution Centers Are a Competitive Edge

Walmart’s use of their brick-and-mortar stores as ecommerce distribution centers turned out to be more of a competitive edge than just their close proximity to end customers. Throughout the pandemic, many customers began to choose Buy Online Pickup In Store (BOPIS) options as often as home delivery. Without physical storefronts, Amazon was obviously unable to provide this option, which may have driven even more shoppers to Walmart Marketplace.

As stores began to reopen, shoppers maintained many of their pandemic-driven online shopping patterns but chose to make returns in-store. A 2020 consumer survey revealed that 47% of shoppers actually prefer to make returns in-store, another convenience Amazon is unable to offer customers. Return policies not only affect consumer purchasing decisions, but when making returns in-store, shoppers are more likely to pick up additional purchases while they’re out. In the end, these value adds could quite possibly give Walmart a competitive edge in the race for ecommerce dominance.

Optimizing Your eCommerce Distribution Center Strategy

Strategically Prepare for eCommerce Evolution. If there were a primary takeaway to be drawn from the Walmart and Amazon rivalry, it’s that businesses need to become more strategic with how they structure their ecommerce distribution network. With 87% of shoppers beginning their product search online and 54% preferring to make online purchases (8), the importance of optimized ecommerce fulfillment continues to rise. And as companies like Amazon and Walmart continue pushing the envelope for faster distribution and delivery, other companies will be forced to follow suit. But while very few businesses have the resources available to a giant like Walmart, the fulfillment methodology they are applying can be adopted by virtually any company today.

With 87% of shoppers beginning their product search online and 53% preferring to make online purchases, the importance of optimized ecommerce fulfillment continues to rise.

Know When & Where to Outsource Your Fulfillment. As on-demand fulfillment providers like Ware2Go increasingly penetrate the market to offer scalable warehousing and distribution services, many businesses that otherwise could not afford or accommodate such functionality now can. For small and mid-sized companies, using an on-demand fulfillment provider that can dedicate their resources to quickly processing and shipping orders takes massive strain off in-house personnel and is often more cost-effective and efficient than leveraging a service such as Amazon FBA.

So, to recap: If you don’t have the time or budget to build your own distribution centers, why not let a specialized provider manage these workflows for you? And if your clients aren’t demanding same-day shipping, why leverage expensive and often clunky services to provide it? Given the broad availability of outsourced solutions on the market today, businesses need to seriously consider what approach best sets them up for success. The answer might surprise them.

Source Information

1, 5 – “How Online Commerce is Disrupting Industrial Supply.” UPS. Whitepaper. 2017. Web.

2 – Estimate provided by SunTrust Robinson Humphrey. Analyst Note. 2018. https://www.suntrustrh.com/

3 – “2018 State of Ecommerce Shipping.” Shippo. 2018. Web. https://get.goshippo.com/2018_state_of_ecommerce_shipping

4, 6 – 2015 BizRate Insights Survey. Web. https://bizrateinsights.com/resources/how-important-is-same-day-delivery-to-shoppers/

7 – “Playing to Its Strengths: Why Walmart Must Focus On Its Stores & Logistics.” Forbes. 2018. Web. https://www.forbes.com/sites/brittainladd/2018/09/09/playing-to-its-strengths-why-walmart-must-focus-on-groceries-stores-and-logistics/#3f269d41e064

8 – Shopper First Retailing. Survey. Salesforce & Publicis.Sapient. 2018. Web. https://www.salesforce.com/blog/2018/08/digital-shopper-first-retail-report-research.html

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