In this episode of Industry Focus: Consumer Goods, the cast breaks down Wal-Mart's (WMT 1.85%) logic in buying Parcel, a New York City-based delivery logistics start-up that enables urban dwellers to receive same-day and scheduled deliveries.
While Wal-Mart has many reasons to invest in Parcel's operation, its fight with Amazon.com (AMZN 2.07%) over the future of retail also plays into this purchase. Tune in to understand how this deal bolsters Wal-Mart's recent foray into online shopping and delivery.
A full transcript follows the video.
This video was recorded on Oct. 3, 2017.
Vincent Shen: For our last story, it's yet another recent development from Wal-Mart. I know we've been hitting a lot of Wal-Mart coverage on the show lately, so I'll tentatively promise that this will be the last bit for the king of retail for at least a few weeks, if not a few months. But I won't deny that it's been pretty fascinating to follow along with the various experiments and new initiatives that Marc Lore has rolled out as the head of the company's e-commerce efforts. That's not to mention what Wal-Mart has done with the Jet.com business itself. The company actually announced this morning that it would be acquiring a small start-up called Parcel. What's the story here, Asit?
Asit Sharma: Parcel is, like you say, a small company that focuses on last-mile and same-day delivery in New York City. The transaction size was not disclosed, but it is said to be about $10 million. So you can imagine, this is a very tiny company. What would Wal-Mart want to do with a company that it can purchase for $10 million that's located in New York City, of all places, a very dense city?
The answer is that last-mile services are the hardest part of the logistics supply chain, the most expensive part, pound-for-pound. Amazon.com, a fierce competitor to Wal-Mart, has partnered up with the United States Postal Service to solve last mile problems. But what's so interesting is, in New York City, there's a lot of opportunity for Jet.com to basically be a test kitchen for different ventures. And Parcel helps Jet.com, which Wal-Mart acquired, listeners will remember, for $3 billion. Parcel helps Jet.com test delivery services within dense populations like New York City. So we should talk about Uniquely J, which is Jet.com's answer to the Whole Foods-Amazon.com partnership. Uniquely J is a service developed by Jet.com to offer high-end food products and also products such as cleaning supplies, bath tissues, to customers for delivery, probably within that same two-hour window that Amazon.com promises. Parcel lets Jet.com make that last-mile delivery, and it gives this experimental template for Wal-Mart to go into big cities where it doesn't necessarily want to put a Supercenter -- places like New York, Los Angeles, Chicago -- and have a supplemental business model while also trying to kick Amazon.com in the shins.
Shen: I think this is where everything comes together. We have this small start-up logistics company to help organize same-day deliveries for New York City. It has some of the infrastructure, the staff, and experience in the city to ramp up the potential same-day shipping efforts for Jet.com and Wal-Mart.com in that market. At the same time, I believe that Parcel is already handling some of the deliveries, for example, for Bonobos, which also happened to be acquired by Wal-Mart earlier this year. And that becomes part of this overall plan where everything is starting to come together a little bit for the company's e-commerce efforts. They talk about the Bonobos and Modcloth acquisitions -- these are men's and women's apparel companies. Now, Wal-Mart has recently announced that they intend to make both those brands available on Jet.com.
So Jet.com previously having more of a discount reputation, they're starting to offer those two brands on there, raising the cachet, again, another time that we're using that, the brand premium that's associated with the site. And with Uniquely J, they've also mentioned that this private-label Jet.com brand that's going to roll out with consumer staples in the next couple of months, they want it to target some of these urban-based millennials. So they'll get a similar theme here, because these Uniquely J products are supposed to be higher-end to appeal to that target market. Again, as you mentioned, this really follows closely on the heels of Amazon, which has made its 365 by Whole Foods products available online, and the initial reports for that said it was met with great success, a lot of items selling out very quickly.
So we've spoken previously about the solid growth Wal-Mart is enjoying in its digital business. I ultimately believe this is still a marathon. These are all small moves on the chessboard for the company. Ultimately, Wal-Mart wants to widen its appeal with the help of Jet.com, and its reputation as a younger, cooler brand while establishing the necessary infrastructure and logistics it will need to provide greater convenience to customers in these various urban markets, obviously starting first with this one Parcel deal right in New York City. Any other takeaways for you, Asit, in terms of what this spells for the future, in terms of this arms race between the big retailers?
Sharma: Sure, one last point. And by the way, what a great example, because these are two grand masters that are playing a very long game of chess. I was really intrigued by this acquisition, because Wal-Mart is taking such a different approach than Amazon. Everyone knows Amazon builds fulfillment centers every year all across the U.S. from the ground up, supplies them with amazing automation and technology. Wal-Mart is picking up on something that I was actually reading about in Supply Chain Newsletter several months ago, that there's a ton of warehouse space in cities like New York, in Brooklyn, where I believe Parcel is based, in Chicago, in almost any big city you can think of. You've seen how urban drift has created this. It's space that's unleased, perfectly usable, and very capital-light for a company like Wal-Mart. So it's developing a model where it can have its own quasi-fulfillment centers which are just in big cities to deliver that last mile much more cheaply than if it tried to compete with Amazon and think of itself as a company that's going to build a bunch of its own fulfillment centers. Of course, Wal-Mart thinks that its superstores themselves are quasi-fulfillment centers, and they have a point, because they're so large. But I'm intrigued from the real estate aspect of this. Again, if this is a chess move, to me, this is equal to a threat on the chessboard. It's like calling check, and the other opponent over time is going to have to make sure that his king is well protected. So we'll follow that as well.