A New Online Discount That Could Actually Spur Store Traffic

Walmart's ‘Pickup Discount’ program leverages retailer’s huge footprint

Author: Andria Cheng

April 12, 2017

In its cutthroat competition with Amazon.com, Walmart has come up with a unique discount formula that may appeal to its price-conscious shoppers and spark additional buying in stores, but without crimping its margins.

Walmart on Wednesday introduced Pickup Discount, which will give discounts to customers willing to pick up in stores some online-only items. The discounts customers get are based on how much Walmart saves on so-called last-mile delivery costs, which it said represent the lion’s share of shipping cost to customers’ homes.

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According to the head of Walmart.com, Marc Lore, it costs Walmart less to ship to stores from its fleet of 6,700 delivery trucks, which are already ferrying goods from its fulfillment centers to its 4,700 US stores.

Lore said Walmart is taking a page from Jet.com’s Smart Cart program, which passes along savings when customers opt for services that reduce the retailer’s costs. These include the use of debit cards vs. credit cards, or opting out of free returns. Lore is the founder of Jet.com, which Walmart acquired last year.

Price remains one of the most critical considerations for shoppers. A PWC survey of digital buyers found that nearly 60% of US survey respondents said they check prices on Amazon.

Walmart provided some product-specific examples of how the discounts will play out. It said the discounts on an $148.05 Britax infant car seat, a $23.99 Lego City Great Vehicles Ferry set, an $111.49 Coleman 150 qt cooler will be $7.40, $2.55 and $4.46 respectively. A check on Amazon.com found those exact same prices for the sample items—before Walmart’s offer of the pickup discount.

Walmart’s nearly 5,000 store presence “is a huge advantage over Amazon,” said Craig Johnson, president of retail consulting firm Customer Growth Partners, in an interview. The “concept makes a lot of sense.”

The move isn’t just about a potential price edge that Walmart may have over Amazon and its many other rivals. It also allows Walmart to boost store traffic, a key challenge for brick-and-mortar retailers these days. It also allows Walmart to reduce shipping costs, expand its “click and collect” program and get customers to be in the habit of buying online before going to store, Johnson said.

Also just as critical, if shoppers pick up their orders in stores, they may end up buying additional impulse items. Impulse purchasing is still mainly an in-store behavior.

“Getting added sales via cross-sell/upsell can happen with a 10-20% lift if done right, via well-executed human sales assistance on-site, plus any impulse items near the pick-up area,” Johnson said, pointing to examples such as wine and beer for last-minute pickup.

The program also may click with Walmart shoppers because of its enormous footprint: Walmart has said 90% of Americans live within 10 miles of one of its stores. Indeed, an NPD Group study released this week lists Walmart as the No. 1 retailer in terms of customer penetration: It found that 95% of U.S. consumers have shopped at Walmart last year. For Target, the number was 84%. Amazon trailed far behind: only 42% of consumers shopped at Amazon last year, according to the NPD Group study.

Walmart’s various moves to improve pricing, spur ecommerce and even bolster employee morale via wage increases appear to be paying off: Walmart’s namesake US stores have seen 10 straight quarters of positive same-store sales and nine straight quarters of positive traffic. Walmart US online sales last quarter jumped 29%.

The edge is expected to continue: Retail Metrics data showed Walmart is estimated to report a 1.3% fiscal-first quarter same-store sales gain, compared to declines projected for Target and Best Buy.

To be sure, there is always a risk in relying on discounts to drive traffic. This move may help convert hesitant shoppers, but it will only work to benefit Walmart if the discount is used sparingly, said Nick McLean, CEO of OrderDynamics, which provides clients including Speedo with order management tools, in an email. “By over discounting or offering the promotions on too many items, Walmart may end up losing profit margins on both online and in-store purchases.”

And it remains to be seen how much Walmart may save on shipping costs as it passes on those discounts to shoppers. Shipping costs have become a big expense item for many retailers as they increase online sales and consumers become ever more demanding of free and faster shipping.

Amazon, for instance, said its net shipping costs jumped 43% to $7.19 billion in 2016. By comparison, Amazon’s total operating income was $4.19 billion last year.

Walmart doesn’t break out shipping costs in financial statements.

Last-mile delivery costs can often reach or even top half of total parcel delivery cost, a McKinsey & Co. study released in late 2016 showed.

The last mile’s big share in total parcel delivery cost “makes it a key process step for those seeking to gain a competitive advantage,” the McKinsey report said. “It is precisely at the last mile that many incumbents are struggling, as they often shoulder significant labor cost disadvantages and therefore, all else being equal, competitive disadvantages.”

Photo credit: Walmart