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April 20, 2017

Ecommerce Surge Impacts Profit Margins, Prompting Changes in Strategy & Tactics

Walmart offers discounts to entice customers to pick up in-store. UPS adds Saturday home delivery and tests drones.

Amazon and Walmart lead all e-commerce retailers, racking up annual online sales of $79.3 billion and $13.5 billion, respectively, according to the data and research firm eMarketer. But the more telling data point is this: online sales still account for only 2.8% of Walmart’s total sales. To address its online underdevelopment, last year Walmart announced it would acquire the e-commerce start-up Jet.com for an eye-popping $3.3 billion.

Another key strategy the world’s largest retailer will employ is to leverage their physical stores, which can serve as warehouses from which products can be shipped or picked up. This could represent a key advantage since small package shipments directly to homes is costly. Hoping to control shipping costs, which are certain to rise as e-commerce accounts for an increasing share of overall sales, earlier this month Walmart unveiled a new “Pickup Discount” program that will reward customers with 3 to 5 percent price discounts when they order select items online then pick them up at one of Walmart’s 4,700 brick-and-mortar stores. According to a company release, the price-break will be offered on more than one million items by the end of June.

With online sales growing far faster than overall retail sales, all major players in the e-commerce space are exploring ways to better manage “last-mile” delivery expense – the high cost of transporting goods over the last leg of delivery, into the home. UPS, for example, saw its profit margin contract during the latest fiscal quarter, as growth in home deliveries outpaced growth in deliveries to commercial addresses.

In response, UPS said it will increase capital spending by $1 million, or 33 percent, to keep up with consumers’ rapid shift to online shopping. In addition, the company just initiated Saturday home delivery, which both the U.S. Postal Service and FedEx already offer. UPS is also testing in rural areas home delivery via drones launched from truck roofs.

This e-commerce news summary is presented by Butcher Block Co. BBC is an online seller of kitchen countertops, furniture and accessories, including kitchen knives, knife blocks and exquisite serveware. Butcher Block Co. keeps close track of emerging trends in the retail sector.

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