Wal-Mart (NYSE:WMT) has been testing a new plan to use store employees to deliver orders placed online.
While the program is only being tested, it's part of a bigger effort to change how the company's workers think. That's a program being led by Marc Lore, who runs the company's digital operations as well as Jet.com, which he founded before Wal-Mart bought it.
On this episode of Industry Focus: Consumer Goods, host Vincent Shen is joined by Motley Fool contributor Daniel Kline to talk about how this effort fits into the retailer's bigger plan. The two discuss how Lore has brought start-up thinking to the chain and what that means as Wal-Mart tries to shift to a digital-first model.
A full transcript follows the video.
This podcast was recorded on June 13, 2017.
Vincent Shen: We have Wal-Mart sales associates taking to the road. Dan, you pointed out this news to me recently. We often hear about how major brick-and-mortar retailers want to leverage their extensive geographic footprints as an advantage over online competitors. You have all these stores located across the country, whereas more pure play e-commerce players might have more limited networks of distribution fulfillment centers. These efforts, though, take various forms. And Wal-Mart is taking an interesting approach, announced earlier this month, where they want to have store employees actually deliver some of their online orders to nearby customers. This is a small test, with just one store in Arkansas near the company headquarters, and two in New Jersey, which is closer to the base for Jet.com, which Wal-Mart acquired for about $3 billion recently. The number of orders fulfilled this way with employee deliveries, it's only in the hundreds so far, so a very small test. What do you think, Dan? Is this another innovative idea? Or is this another dart in the wall among many efforts?
Daniel Kline: It's a mindset. When they bought Jet.com -- and I've written about this a lot of times -- they bought them largely from Marc Lore, the CEO, the serial entrepreneur. I saw Marc Lore speak at Shoptalk, and he talked a lot about infusing a start-up mentality into Wal-Mart. I used to run a piece of my family business, a ladder and scaffolding company, and if a customer called and said, "I need two braces or my scaffolding can't get up," because we were a family business, we had an all-hands-on-deck mentality. If that meant throwing it in the back of my station wagon and driving it out there in the middle of the night or on my way home or whatever it was, that's what you did. And that's what Wal-Mart's doing here. I don't think they expect that a large percentage of their orders are going to be delivered by store employees on their way home. But this is just creating a mechanism. You can't do it willy nilly at a big company the way you can at a small company. This is creating a system where, if an order needs to go out, a manager could say, "Hey, anyone going home in this direction?" Someone can raise their hand, the employee can get compensated for it. It's a failsafe. It's a start-up logic. At Jet.com in the early days, when you're trying to ship orders, anything goes. Marc Lore was probably stuffing boxes, that's just how it works. So this is really about getting Wal-Mart to think, "We are not a physical store, we are in the business of getting products to people however they want them."
Shen: OK, fair enough. Some numbers I will throw out there, though, to put this into perspective -- I know right now it's a limited test, and you're right, whether or not it becomes this major avenue through which they can bolster their e-commerce business, which has been growing quite well since their Jet.com acquisition, since Marc Lore has taken over the online side of the business. The company has 1.5 million U.S. employees. They mention this in the blog post about this initiative -- 90% of the U.S. population lives within 10 miles of a Wal-Mart store.
So how this essentially works, in terms of the details, the employees only need to have their own car, they need to pass a background check, and then they get outfitted with a mobile app that essentially plans their deliveries based on a route that's convenient to their commute. Then, they can deliver up to 10 packages daily, and there's some weight and size limits of their choice so that they can handle it. You mentioned that the company says that the employees are paid for their time, although there are very little details released regarding how, whether it's the number of packages you deliver or the amount of time you spent delivering them. But when it comes down to it, this touches on a topic, I think, that Dan, you and I covered quite some time ago, probably a year ago or more, when we were talking about last mile delivery and logistics, the idea that you might be getting your package from across the country, but that last mile often accounts for 50% or even more of the actual expenses of the delivery.
Kline: It's the big challenge, it's why Amazon has put warehouses in different markets, and they're working on crazy things like drones or trucks that can 3D print your item as you order, and pretty much every way possible working with partners to get it to your actual house. This, for Wal-Mart, becomes another arrow in the quiver. They're not going to stop using planes and trucks and distribution warehouses for online orders. But there's going to be times when you go to order something and the only one of what you order is in a warehouse or a Wal-Mart store three miles from your house, and the logical way to do it is pick it off the shelf and bring it to you. And that's something that Wal-Mart has been working on with internal apps and different tools so that their logistics get better, so they don't have one inventory for the store and one inventory for the digital operation. They're trying to make everything one operation. Having been a retailer myself, in a much smaller way, it is a big challenge when you have customers shopping in the store, and even someone who calls you up and says, "Do you have a so-and-so, can you set it aside for me?" when multiple people want the same thing at the same time. So this is a big headache for Wal-Mart, but they're figuring out how to get it done, and they're throwing a lot of technology at it and matching it with, "Hey, who's willing to help out?" which should be good for morale. And when a Wal-Mart worker shows up at your door to deliver your package, that's going to be good for brand loyalty, as well.
Shen: I will add, we talk a little bit about the expense side with last-mile delivery, and also the turnaround time. Obviously, you have the Amazons of the world competing with one-hour delivery, two-day standard. Wal-Mart noted that a lot of these employee-delivered packages made it to customers the day after they placed the order, so essentially an overnight fulfillment. This is, I think, another example, when it comes down to it, of how the company has tested partnerships. They went with ride-hailing services like Lyft and Uber delivering packages previously. You have companies like DoorDash and Instacart offering similar services. But this is just a little bit more efficient, instead of having the drivers from those companies come to your store, pick up the package, and deliver it, you have employees doing it on the way home. I think it will be really interesting to see, going forward, what other ideas like this Marc Lore will bring to the table, now that he's running the online business. It shows, the way you mentioned, this mindset, and how they are willing to experiment and grow that part of the company as necessary.
Kline: Yeah, I think everything is in the mix. If you're in a market where delivery via sled dog makes sense, or hot air balloon, or whatever it happens to be, or putting it on a raft and floating it out to the iceberg, all of these things, in some tiny way, are going to figure in -- OK, probably not the last one, but most of these things are going to figure in. And Lore is just building this culture of, we have promised a customer two-day delivery, how do we meet or beat that? And that's a very Amazon way of looking at things. I'll point out, as someone who orders five or six things at minimum a week from Amazon, it's pretty often that the two-day delivery shows up in one day.
Daniel Kline has no position in any stocks mentioned. Vincent Shen has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Amazon. The Motley Fool has a disclosure policy.