Wal-Mart Banks on Cavernous Warehouses in E-Commerce Push

Wal-Mart Stores' expanding network of large distribution centers will allow it to deliver packages throughout the United States in two days, setting it up to compete more efficiently in online holiday sales, a senior executive said on Thursday.

Competition with online rivals including Amazon which recently surpassed it in market value, has heated up and Wal-Mart has committed as much as $1.5 billion (roughly Rs. 9,794 crores) this year to invest in e-commerce.

Much of that is going into large-scale warehouses dedicated to fulfilling online orders. It now has five such facilities, from which it says it will be able deliver to 95 percent of country in two days.

The facilities - some big enough to house two cruise liners - will enable it to receive, sort and ship packages faster and at a lower cost, Michael Bender, chief operating officer of global e-commerce, said in an interview.

Bender was speaking after an event to mark the opening of one of the new warehouses - a 1.2 million square foot facility outside Atlanta which cost about $100 million (roughly Rs. 652 crores) to build and will act as a hub for surrounding states.

"Christmas for us will be very different than Christmases of the past where we have had to work out of facilities that are not like this," Bender said, noting, among other changes, that it may no longer need to rent warehouse space to keep up with the influx of goods during the holiday as it previously did.

"We won't have to do that as much anymore, if at all."

In addition to scale, the Atlanta facility features a number of technological advances which Wal-Mart believes will help it to process packages more quickly and cut costs.

Algorithms help determine what products should be routed through the facility, while workers use mobile technology to store, scan and pick items, which are moved over a sophisticated maze of conveyor lines. Software automatically tells workers which cardboard box to use to best fit a multi-product order.

Bender said the new facilities will lead to more consolidated orders, meaning customers that order multiple items get them in one box at the same time, cutting down on instances when items are delivered separately from different hubs.

More big warehouses are in the offing, with Wal-Mart announcing plans to build two more new e-commerce facilities in Florida. In addition, it fulfills online orders from dozens of distribution centers and about 80 stores.

Whether Wal-Mart will keep spending at this pace will become clear this month when it unveils investment plans for the next fiscal year at an annual investor meeting. While declining to disclose specifics, Bender said the board and executives remained "focused on helping the e-commerce business grow."

Bender said Wal-Mart was still testing a shipping club which is offering free delivery of packages within three days for $50, half the annual membership fee for Amazon.com's Prime. He said feedback has been positive and he believed a lot of customers would be happy with three-day delivery.

At the same time, Bender acknowledged that customers are increasingly seeking next day or same-day delivery, and that Wal-Mart would need to keep investing. "So as we build out this network our eyes are certainly pointed towards making sure that we are able to deliver faster and faster," he said.

© Thomson Reuters 2015