Amazon.com (NASDAQ: AMZN) needs to start looking over its shoulder because it now has a gargantuan competitor in the world of online retail that might surprise some pundits: Walmart Stores (NYSE: WMT). Wal-Mart is testing something called "Walmart To Go" in Denver, Washington D.C. and other metropolitan areas.
Like Amazon.com's Prime, Walmart to Go is a same-day online delivery service. Basically, it allows consumers to shop at Walmart without actually having to go to Walmart. It works like this: A consumer goes to the Walmart to Go website orders his or her stuff and pays for it. Then Walmart's truck brings it to the person's home.
The service focuses on groceries and household goods, but it is a definite challenge to Amazon Prime. Walmart To Go customers don't have to pay a membership fee, and the service currently offers free shipping or a small delivery charge.
Will It Work?
The billion dollar question here is will Walmart To Go work or not? To succeed, services like Amazon Prime and Walmart to Go will require a sea change in shoppers' behavior.
Walmart To Go will work for the very simple reason that Walmart is not really a retailer. It is a logistics company that simply owns a lot of stores. Walmart's success is built on its ability to move a lot of merchandise to its stores quickly and efficiently.
Home delivery is simply the next logical progression in Walmart's logistics business. Walmart and its Sam's Club subsidiary already have a lot of experience with home delivery. They ship vast numbers of orders to homes through services like UPS and FedEx everyday
That being said, home delivery is a tough business as UPS and FedEx discovered over the Christmas holiday. A sudden increase in online retail volume caused their delivery networks to collapse, delaying shipments for days and angering customers.
Even companies with a lot of logistics experience such as Walmart and Amazon.com are going to have a tough challenge developing logistics networks capable of meeting public expectations. There's also the cost of deploying all those trucks and drivers. Although, Walmart would seem to have the resources to meet the challenge with the $475.11 billion in TTM revenue it reported on Oct. 31, 2013.
How Will Walmart to Go Effect the Retail Environment?
How would the success of Walmart To Go affect the retail environment? After all, several major chains are close to collapse and some observers are now predicting a "retail apocalypse."
The most likely scenario would be that Walmart To Go will speed up the retail apocalypse. The most likely victims of Walmart home delivery are drug store chains such as Walgreens, dollar or small box retailers, Kmart, category killers such as Toys R Us and Best Buy, and, of course, Target. Target could be the biggest loser because Walmart to Go and Amazon.com Prime are aimed squarely at its core customers: hip middle class shoppers.
One big threat to retailers such as Target is that they will have to start offering expensive services such as free shipping and home delivery. Those companies don't have the kind of resources that Walmart can draw upon.
The wild cards in this equation are Costco Wholesale, eBay, and grocers such as Kroger Co. and Safeway. Costco, eBay, and Kroger are all experimenting with home delivery services of their own. Any of these companies or a combination of them could pose a challenge to Walmart. One interesting possibility is that some of these retailers might form a home delivery alliance to challenge Walmart and Amazon.com.
Walmart To Go could change the retail landscape completely. Instead of being a dinosaur facing extinction, Walmart might be the monster that dominates the online retail market just as it dominates the big-box category.
The Motley Fool's Best of the Best
There's a huge difference between a good stock and a stock that can make you rich. The Motley Fool's chief investment officer has selected his No. 1 stock for 2014, and it's one of those stocks that could make you rich. You can find out which stock it is in the special free report "The Motley Fool's Top Stock for 2014." Just click here to access the report and find out the name of this under-the-radar company.
Daniel Jennings has positions in eBay, Safeway and Kroger. The Motley Fool recommends Amazon.com. The Motley Fool owns shares of Amazon.com. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.