Walmart is piloting a delivery program that leverages its store staff as delivery drivers in a decidedly manual response to the digital threat of Amazon.com. And it just might work.

Conceptually this initiative may be a stroke of genius, not unlike the Seinfeld “Bottle Deposit” episode where the economics of bottle redemption out of state are resolved by leveraging a character's mail truck. But, as with the Seinfeld episode, the devil is in the details — converting store clerks to delivery drivers may be a can of worms that Walmart doesn’t want to open, creating staffing and liability issues.

But, in the face of competitive pressures — notably from Amazon, which intends to become a ‘Top 5’ U.S. grocery delivery company by 2025 — Walmart may have no choice.

Bloomberg News
Bloomberg News

“Not only can this cut shipping costs and get packages to their final destinations faster and more efficiently, it creates a special win-win-win for customers, associates and the business,” wrote Marc Lore, president and CEO of Walmart U.S. eCommerce, in an official Walmart blog post.

Walmart associates are fully in control of the experience and participation is optional. If they choose to opt in, associates choose how many packages they can deliver, the size and weight limits of those packages and which days they’re able to make deliveries after work. Walmart is initially piloting in two locations in New Jersey and one in northwest Arkansas.

A race to the bottom. With increased consumer demands for home delivery, online and offline retailers are tasked with feeding an insatiable need for fast e-commerce service that must still be profitable for the provider.

Amazon is particularly aggressive in this regard. Last month, the e-commerce giant announced that it is dropping its free delivery minimum for non-Prime members to $25 from $35, a shot across the bow of Walmart’s January announcement that it was dropping its free shipping minimum to $35 from $50. Both companies have been working through the permutations of lowest-price delivery with concepts such as drop boxes and in-store pickup, but ultimately the consumer wants the store to come to them rather than vice versa.

There will come a point soon when these fierce competitors cannot commoditize the cost of delivery any further and will hit an absolute minimum threshold for delivery costs. At that point, they face the tradeoff of subsidizing the service to gain market share, or risk diminishing service quality. Using associates for delivery may enable even lower delivery costs, but there will be a point at which there are no more corners to cut.

Risk vs. reward. With an average hourly wage for Walmart Associates of $9 and change, the ability to earn a bit more money for doing something that they would be doing anyway — driving home — may be appealing. However, using employees for a task that they were not hired for could be fraught with liability issues.

What happens if a package left for a customer is lost or stolen? Or, if the employee is involved in an accident while on a delivery route?

Walmart will need to make sure the reward for driving is worthwhile if its initiative is to catch light and must incentivize meaningfully to ensure this voluntary supply of drivers matches delivery demand. Its average wage may not be sufficient motivation to do this.

Further, given a taste of an alternative profession, these associates may explore careers in delivery; Amazon delivery drivers earn $18 - $25 per hour, more than twice that of Walmart cashiers. Alternatively, Uber is also building up a delivery service, and Walmart associates who are interested could switch careers as easily as downloading an app.

Geographical advantage. Where Walmart’s plan could prove compelling is in its ability to reach rural America.

Amazon’s delivery coverage focuses on 30 metropolitan areas. Walmart, however, has 4,700 stores across the U.S. and more than a million associates, putting the company within 10 miles of 90% of the U.S. population.

This might be key to the success of this initiative. With lack of competition in remote places, Walmart could localize the cost of delivery charges based on mileage from its nearest store rather than a flat fee. There may even be scope for a rural/urban demarcation of competition in time, with stores such as Walmart focusing on the areas where its strengths far surpass those of its digitally inclined rivals.

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Nick Holland

Nick Holland

Nick Holland is a Senior Analyst at PaymentsSource. He has previously held analyst roles at Javelin Strategy & Research, Yankee Group and Aite Group.