Dive Brief:
- Walmart changed its e-commerce systems to avoid orders that were too expensive to ship, resulting in many grocery and household products being listed as "out of stock" on the company's website, according to The Wall Street Journal.
- The new system, which was introduced earlier this month, has led to a decline in sales for some suppliers that sell their products on Walmart's website, sources told the paper. Some suppliers said they were not warned of the change before it took effect.
- Walmart said the shift is part of a test to deliver more products by ground — which is cheaper than shipping by air — while still upholding the company's two-day delivery promise. A company spokesperson said it also aims to cut down on orders that arrive separately from multiple warehouses — so-called "split shipments."
Dive Insight:
When consumers go to Walmart's website to shop, they may be disappointed to find an "out of stock" message on products they need. Walmart no doubt understands the risk here, but it believes shipping savings will outweigh negative consumer sentiment in the long run.
Walmart has been ramping up its efforts in e-commerce to be a leader in online shopping, with store pickup available at hundreds of locations and home delivery rapidly expanding. The company is leading the charge against Amazon — but this comes at a cost. According to sources interviewed by The Wall Street Journal, Walmart has spent more than it anticipated in order to support free shipping on orders more than $35.
To save money, Walmart has listed products in locations too far away from a customer’s shipping address as unavailable. Before this shift, the retailer would ship those item no matter the distance and cost. The test applies to products consumers buy most, such as household cleaners and nonperishable groceries. A company spokesperson said shoppers shouldn’t notice a substantial increase in out of stock items because the website will suggest similar products available at nearby warehouses.
This new step could turn away shoppers used to getting whatever products they want online. However, it’s necessary for Walmart to work out its shipping calculus now as the online market continues to grow. Online shopping is projected to increase at 10 times the rate of in-store sales during the next five years. The retail giant is wise to improve the process now before e-commerce becomes an even bigger part of its business.
“I think long term it’s absolutely the right choice” to make these shipments more profitable, an executive at a large food company told The Wall Street Journal. “Short term, it’s a bit chaotic.”
This change could push more consumers to Walmart's click-and-collect platform, which has seen major growth. The digital crowd has preferred click and collect versus delivery and that could be better for grocers since most impulse purchases happen in-store. A report by Packaged Facts found that Walmart’s pickup strategy is tops among current grocers right now. Among click-and-collect consumers, about 42% identified Walmart as the pickup location for their last order.
Walmart's store-pickup program has been a major win for the company — and particularly its grocery division — but with Amazon an ever-growing threat, it also needs to get home delivery right. If the company doesn't have enough products available for easy, fast delivery, it risks losing customers to the e-commerce competitor.
