Walmart Is Beating Amazon in a Business Worth $35 Billion

On a number of fronts in online shopping, Amazon.com's strategy is clear and brutally effective. It is gunning for more dollars in high-margin categories such as home goods with a growing catalogue of private-label items. It's offering two-hour delivery in some markets, a speedy service few retailers are in position to match. And its popular, voice-activated Alexa devices and software have put it at the centre of the emerging trend of shopping via virtual assistants.

There is one important area, though, where Amazon's strategy looks much fuzzier: Click-and-collect. This hybrid of online and physical shopping is proving popular, and it could potentially prove a costly mistake for Amazon that it hasn't moved more quickly to get a piece of the action.

A new report from Cowen & Co. estimates that curbside grocery pickup will account for $35 billion in sales in the US by 2020 as it is embraced by a greater proportion of consumers.

This is a model that's well-suited for traditional retailers. They are in a good position to scale up quickly, and they are doing just that. Target's Drive Up service is offered at about 1,000 stores and will be in all stores by the end of 2019. Walmart's grocery pickup program is available at about 2,100 stores and will be in 3,100 stores by the end of the fiscal year. (Both retailers have additional click-and-collect programs that allow customers to pick up online orders at a counter in the store.)

Both Walmart and Target say their net promoter scores - a key measure of customer satisfaction - are especially high for curbside services. And the click-and collect push is making a difference. Cowen analysts estimate that Walmart grocery pickup is contributing significantly to the retailer's overall U.S. comparable sales growth. They forecast Walmart's US comparable sales will increase 2.8 percent for the current fiscal year from the prior year, and that grocery pickup will account for between 0.9 and 1.3 percentage points.

It's not that Amazon is sitting idly by when it comes to this digital-physical shopping mashup. It has two locations of AmazonFresh Pickup in Seattle, a drive-up spot for retrieving groceries. Its Whole Foods Market chain has rolled out click-and-collect services in 22 cities. And beyond the grocery segment, Amazon has a limited number of pickup centers and lockers. It all adds up to a smattering of tentative moves - not a cohesive strategy that can ramp up quickly nationwide.

On some level, it makes sense that Amazon isn't a leader in click-and-collect. It will be harder for it to make such an operation profitable when it is building its stable of pickup points from scratch (or via acquisition, in the case of Whole Foods.) And I suppose Amazon could convince itself click-and-collect isn't an end game for e-commerce, but merely a bridge format that offers some measure of convenience before technology such as driverless cars, drones and smart-home entry systems make doorstep delivery - which Amazon dominates - more economical for sellers and more appealing for shoppers.

But there are downsides for Amazon in not more aggressively pursuing click-and-collect sales.

For one, even if click-and-collect fades as a format at some point, it is serving as an entry point to the wider digital ecosystems of the likes of Walmart, Target and Kroger Co., cultivating digital loyalty to those brands. It might prove hard for Amazon to elbow its way into a given customer's online routine once that relationship has been established.

And there's a rather strong possibility that pickup is here to stay. It has particular appeal in suburbs, where shoppers spend a good chunk of their day in cars. Pickup, unlike same-day delivery, typically doesn't come with a fee, which may hold ongoing sway for budget-conscious consumers.

Amazon obviously sees value in becoming a so-called multi-channel retailer, given its acquisition of Whole Foods and its reported plans of creating yet another grocery chain. But the window is closing for Amazon to develop a serious click-and-collect strategy that can compete with the maturing ones its competitors have already built. It should be moving faster to make this service more widely available via Whole Foods. Or perhaps it could even establish some outside-the-box way of adding pickup points quickly. Think, for example, of its pilot partnership with Kohl's, in which customers can make returns of Amazon purchases at the department store.

Amazon is such a formidable retailing force, maybe being an also-ran at click-and-collect won't be so terrible for it. But the e-commerce heavyweight will be better off if it gets more skin in the game.

© 2019 Bloomberg LP