Such services cost a lot of money and that is why both retailers have to convince customers to buy more and more often.
In the race to dominate last mile deliveries, Walmart Stores Inc. (WMT) – Get a free report and Target Corporation (TGT) – Get a free report opt for decidedly different routes. (Yes, all transportation puns are intentional.)
Walmart, the nation’s largest supermarket chain, is leaning harder to partner with the Spark Driver platform, an Uber-like service that allows independent drivers to deliver online orders from stores and warehouses to people’s homes. The retailer tripled its number of pick-up points to 15,000 in fiscal year 2023 from 5,000 the previous year.
Meanwhile, Target has invested heavily in its last mile capabilities. In 2017, the retailer paid $550 million to acquire Shipt, a company that directly employs more than 20,000 people to personally shop and deliver same-day groceries to Target stores.
With e-commerce sales booming, Walmart and Target are chasing consumers wherever they are.
“For retailers, it is more important than ever to ensure a smooth and satisfying last mile delivery – the last leg of the journey where a product ends up in the hands of the consumer,” according to a report from the Capgemini Research Institute.
So which retailer has the upper hand?
Brute force versus quality and experience
In many ways, Spark and Shipt mirror the historically contrasting strategies of Walmart and Target.
Walmart has always taken a brute force approach to retail: overwhelming competitors with size and speed. Open more stores quickly, grab more market share, sell more stuff. The retailer cares more about volume than aesthetics.
In that case, Spark has provided Walmart with instant scale and reach. The company says the platform reaches 84% of US households.
Walmart does not disclose sales of Spark supplies. But the company recently reported that sales of in-store delivery services have tripled over the past three years.
The retailer now generates $1 billion in such sales per month, “which gives you an indication of why we’re so excited about the progress here,” John Rainey, Walmart’s chief financial officer, recently told analysts.
Target, on the other hand, tends to focus on quality and experience whether the retailer is talking about design, merchandising or marketing. By acquiring Shipt, the company can exert greater control over the employees who manually pick orders and personally deliver them to consumers.
“In addition to its remarkable delivery network and same-day operation, Shipt offers a differentiated, customer-centric approach,” chief operating officer John Mulligan previously said. “That’s when we knew it was the right fit – they’re totally aligned with Target’s commitment to providing our guests with an easy, exceptional experience.”
Target said same-day services, including Shipt and Drive-Up and Pick Up store curbside services, generated nearly $11 billion in revenue last year, or 10% of its $109 billion total revenue.
Target’s strategy may be an attempt to solve an annoying challenge with last-mile delivery services: they stink. Delays, incorrect/incomplete orders and high prices are common problems.
Last mile delivery services generally achieved a Net Promoter Score (NPS) of -9, according to a study by the Capgemini Research Institute. An NPS score indicates how willing a customer is to recommend a product or service to another person. The score range is usually -100 to 100.
“As expectations rise, we find that many consumers are dissatisfied with their current last-mile experience,” the report said.
Looking beyond the last mile
Walmart and Target should at least look beyond the last mile. Such services erode profit margins and both retailers are likely to lose a lot of money.
Capgemini estimates that last mile services account for 41% of total supply chain costs, more than double that of all other cost types, including warehousing and parcel shipping.
The group studied a last-mile delivery company, which it did not name, and found that the service cost the company an average of $10.10 per order, while the customer pays an average of just $8.08.
For Walmart and Target, the only way to make last-mile delivery services work is to not only get more customers, but get them to spend more and do it more often.
And that depends on literally delivering what they promise.
In major metropolitan areas, 51% of satisfied customers expect to receive deliveries several times a week, compared to only 16% of dissatisfied customers, according to Capgemini’s research. And 74% of satisfied customers said they would increase their purchase levels by 12% from their preferred dealer.
“A great last-mile delivery service that delights consumers will go a long way in attracting and retaining customers,” the report said.