DC Velocity - April 2014

18 DC VELOCITY APRIL 2014 www.dcvelocity.com
newsworthy
Wal-Mart Stores Inc. has shifted report-
ing responsibility of its 3,288 U.S.
“supercenter” backrooms to its logis-
tics division from store management,
according to an individual familiar with
the matter.

The move, which took place with no fanfare, is a sign that Wal-Mart is preparing its backrooms to play a major role in its battle with Amazon.com for e-commerce supremacy, the source said.

Many traditional retailers are reshaping their backroom operations to meet the challenges and opportunities of omnichannel retailing, where online orders can be fulfilled from multiple locations to meet the growing delivery demands of businesses and consumers. A backroom that was traditionally used to stock inventory for a store can now be repurposed as a de facto distribution center where a product can be picked, packed, and delivered to a customer who placed an online order.

This new imperative could explain why the control of the backrooms at Wal-Mart’s supercenters—which sell both groceries and dry goods—now falls under the oversight of its logistics operation.

The Bentonville, Ark.-based retailing giant has said it believes its enormous bricks-and-mortar network gives it more delivery flexibility and depth of coverage than e-tailers like Amazon that lack physical stores. Wal-Mart has 4,835 stores in the U.S. It also operates 172 distribution centers, 5,954 tractors, and more than 59,000 trailers.

Kevin X. Jones, Wal-Mart’s vice pres-ident-inbound transportation, declined comment other than to say at the Georgia Logistics Summit in March that “there are a number of initiatives under way to improve the backroom flow.”

—M.S.

Wal-Mart shifts control of supercenter backrooms to logistics division

Dachser USA has expanded its operations in Chicago. A newly enlarged warehouse facility will function as a hub for Dachser in the Midwest, providing cross-docking service, warehouse storage, warehouse distribution, and buildup and breakdown of air and ocean containers. ground breakers

Transportation costs remain a thorny issue for Amazon. Its shipping expenses in 2012, the most recent year for which full-year figures were publicly available, rose to more than $5.1 billion, up from nearly $4 billion in 2011, according to the company’s 10-K filing with the Securities and Exchange Commission.

Shipping costs in 2012 exceeded shipping revenue by nearly $3 billion, according to the filing. Amazon generates much of its shipping revenue from third-party merchants who sell products through the company’s site and use its fulfillment services for storing inventory, picking and packing, and shipping.

In the filing, Amazon said it expected its “net cost of shipping”—the ratio of shipping costs to revenue—to continue rising as parcel rates increase and more customers take advantage of the company’s delivery offerings such as “Prime,” which promises unlimited two-day deliveries for an annual fee.

Not everyone believes Amazon will migrate from FedEx and UPS so quickly. Frederick W. Smith, FedEx’s founder, chairman, and CEO, told analysts recently that only FedEx and UPS have the delivery networks capable of efficiently handling the demands of Amazon and other e-commerce merchants. Smith said his company, UPS, and the U.S. Postal Service would remain at the forefront of e-commerce shipping for the foreseeable future.

Tompkins said that Amazon had been planning its strategy long before the well-publicized delivery problems that occurred during the 2013 holiday season, when about 5 million of its shipments were not delivered in time for Christmas. Much of the fallout was laid at the feet of UPS, though some have argued that Amazon erred by understating how many packages were coming UPS’s way in the last days before Christmas, thus overwhelming the Atlanta-based carrier’s air network and triggering the backlog.

Amazon is still smarting from the fiasco, however. The company’s fulfillment executives believe UPS and FedEx are not investing enough in equipment, infrastructure, and other resources to keep up with Amazon’s growth, according to a person familiar with the matter.

These days, every move in the e-commerce space is significant because of its enormous potential. E-commerce has penetrated just 10 percent of the U.S. market, and between 6 and 7 percent of the global market, according to estimates from investment firm Morgan Stanley & Co. Based on projected annualized growth rates of 15 percent, e-commerce could be a $1 trillion worldwide market by 2016, according to the firm.