Shares of the Bentonville, Arkansas-based retail giant edged higher in pre-market trading Tuesday, building back to the century mark after trade war fears tanked the stock and the broader market. As Walmart maintains global supply chains, many of which emanate from China, it could be seen as a significant victim of the recently intensified trade tussle.
What's Next for Next-Day Delivery?
Walmart's NextDay delivery service will apply to around 220,000 frequently-purchased items on the Walmart.com website, the company said, and will be offered without a membership on all orders over $35. The new service will launch in Phoenix and Las Vegas, Walmart said, before expanding to Southern California in the coming days. It will be available to about 75% of the broader U.S. population, including 40 of the top 50 major metro areas, by the end of the year.
"We started with same-day pickup in our stores in 2011 and began offering two-day free shipping two years ago with no membership fee," the company said. "But, the most exciting development has been the creation of Grocery Pickup and Delivery. We're on track to offer Grocery Pickup from 3,100 stores and same-day Grocery Delivery from 1,600 stores by year-end, which will provide coverage to approximately 80% and 50% of the U.S. population, respectively. This has been a game-changer for busy families."
Walmart's effort to cater to convenience-oriented customers should accelerate a broader push in retail in on-demand delivery.
"Our new NextDay delivery isn't just great for customers, it also makes good business sense," Walmart said. "Contrary to what you might think, it will cost us less -- not more -- to deliver orders the next day. That's because eligible items come from a single fulfillment center located closest to the customer. This means the order ships in one box, or as few as possible, and it travels a shorter distance via inexpensive ground shipping."
Walmart's news release said online orders that come from multiple locations are more costly, thus justifying the sped-up delivery service that will be localized to existing fulfillment centers rather than stores.
The announcement of Walmart's next-day delivery effort comes after Amazon promised one-day delivery for Amazon Prime members, an initiative made possible by an $800 million capital expenditure on delivery infrastructure by Amazon, which is a holding of Jim Cramer's Action Alerts PLUS charitable trust.
Given Walmart's existing infrastructure, such an expenditure on its part appears unnecessary.
It's not going to cost $WMT $800mm / Q to go next day. It's profitable now.
Amazon has done some nice PR. pic.twitter.com/QpiG0m9rhL— Jeff Macke (@JeffMacke) May 14, 2019
The Walmart next-day offering also will come sans the membership fee charged to Prime members, potentially making it more inviting to the average consumer.
The service will complement Walmart's already-fast delivery services offered in grocery delivery and pickup, something that recently has been aided by Alphabet Inc.'s (GOOGL) self-driving subsidiary Waymo and Ford Motor Co.'s (F) efforts in the space as well. Walmart also has used blockchain technology to streamline its supply chains, indicating its embrace of the technology alongside Amazon.
Walmart will publish its first-quarter earnings Thursday, with analysts looking for earnings of $1.02 per share on revenue of $125.2 billion, driven by e-commerce growth that has seen gains of more than 40% in recent quarterly reports.
The addition of the next-day option could provide more bullish guidance from Walmart when it reports, especially as it comes without membership fees or capital expenditure needs.
"Scale affords WMT the ability to trial many technologies that should translate into greater efficiencies, core margin stability and cont'd market share gains," Jefferies analyst Chris Mandeville said. "Such dynamics support near all-time high valuation."
Still, the impact of tariffs on China-made goods, which account for a notable portion of Walmart's international imports, will be a big point of interest.
"As the largest retailer in the United States and a major buyer of U.S. manufactured goods, we are very concerned about the impacts these tariffs would have on our business, our customers, our suppliers and the U.S. economy as a whole," Walmart wrote in a letter to U.S. Trade Representative Robert Lighthizer last September.
Interestingly, Amazon stock has bounced about $20 to the upside in pre-market trading as the market appears confident in the ability of the Jeff Bezos-led company to compete.