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URL:  https://boards.fool.com/im-sure-there-are-disadvantages-to-a-store-based-31695891.aspx

Subject:  Re: Ingored holdings: WMT Date:  4/2/2015  7:58 AM
Author:  platykurtic Number:  216223 of 243204

I'm sure there are disadvantages to a store-based model, but it seems to me there are a lot of advantages as well. The big advantage would be that stores can skip the costly last-mile delivery and get many customers to do the pick-up themselves, a strategy which is common in Europe apparently. They can also offer a variety of delivery options: more costly, fast delivery from the central Walmart warehouse, cheaper delivery in a few more days via the local Walmart store, or free u-pick from the local Walmart store. Retail and delivery experts please opine.

Wall of text incoming from not a retail expert per-se, but have worked in delivery logistics extensively (in the past) & live in a European country where ordering 'on-line & collecting' is very common. In Belgium (where I live) it is offered by the three largest grocery retailers (Colruyt, Carrefour & Delhaize) that compromise circa 2/3rds the grocery market. And we are also largish customers of Amazon, probably ordering 25+ times a year (in the last couple of months we've probably averaged at least 1-2 times a week).

On-line ordering & pick-up is great. The way it works here is that you'd order the evening before (generally), select a pick-up timing (there are limited numbers per time slot), pull-in to the side of the store where your order is loaded into the back of your car, you pay (if you haven't already when you ordered) & leave. The pick-up takes far less than 5 minutes & for time constrained people it's well worth the smallish (I'm thinking €5-10) fee. There are a number of interesting implications for the store once this model is rolled-out including ...

- The fee itself - at least here in Belgium - is often pretty variable & can be nothing. There are discounts available for 'easily picked' product quantities, promoted products (the manufacturer pays), near to best-before products etc. that can really reduce the fee to close to zero.
- The selection of the time slot helps the store manage it's labor productivity.
- This model can be leveraged to help the store/chain gain share in related categories. Around Christmas time, Colruyt's toy store chain (Dreamtime) was offering great prices & you could buy gifts there, have them shipped to the gorcery store & them do drive-by pick-up. This type of service chaining must impact Amazon (& other similar retailers) somewhat.
- As a result of all the above ... these services are remarkably popular around where I live.

Having said all that ... outside of groceries (where I expect the competition with people like Amazon will be fierce) I'm not sure it offers as great an advantage over pure-play internet retailers as you appear to suggest. Amazon - even here in Belgium where there is no 'official' presence or in the Netherlands - still often achieves much lower pricing for non-grocery or bulky items. And this is what I've observed on this ...

- Amazon is no slouch when it comes to logistics. Here in Belgium I may order from amazon.de, and have the product delivered out of amazon.co.uk or amazon.fr or on one occasion even the USA (or vice-versa). And Amazon too offers end-mile staging locations well situated with the final delivery service. For Brussels an order from Amazon often leaves Amazon's own logistic network to the local delivery service only in Antwerp. All the cross-dock possibilities stated for Walmart above exist for Amazon too, with the added advantage that the stock may be warehoused solely by the manufacturer and so Amazon working capital is kept to a minimum. No product hanging around shelves anywhere here.
- Amazon also has huge clout with the parcel delivery services. Last time this theory was floated on other boards, it was pointed out that Amazon almost certainly gets the best rates around. Amazon also understands the cost of delivery & updates the cost dynamically - we often pay slightly more per item here in Belgium compared to Germany as a result.
- Amazon will (almost certainly) avoid a lot of extra handling through it's supply chain. For Amazon a product may be ordered, received from the manufacturer, immediately picked & packed & shipped out to a cross-dock location for the local parcel delivery service, who then automatically sorts it & delivers it (in my case to the office along with other peoples orders). Every step in this chain has the ability to be highly optimised & efficient due to the volume of orders. For a Walmart the chain may go something like ... manufacturer delivers to a cross-dock location where (in the best case) it is efficiently cross-docked & sent to the store, where it is stored and then hand-picked into a order that can be collected. In the store it may sit on the shelf consuming working capital and it may sit in the central warehouse for a while consuming even more, and depending upon labor costs hand-picking could be pretty inefficient (from a cost perspective). In short ... it is not clear to me that the Walmart supply chain will be more cost effective, however what is certain is that Amazon appears to have the ability to minimize the costs of its own supply chain on an order by order basis (based on my own observations).
- It's not clear to me that Amazon's delivery costs are spiraling out of control for it's 'mature' business. It is entirely possible that Amazon is deliberately investing in less efficient delivery mechanisms - same day service in San Francisco for example - to achieve critical mass that then positions the company very well into the future with a permanent competitive advantage. It's also possible that it's in trouble from a delivery cost perspective. Amazon is so aggressive in business expansion & investment, and plays it's card so close to its chest that there is no way to know. You just have to trust management.

What could be concluded though is that Walmart is the leading US contender if the local store pick-up model proves most efficient (although I have my doubts given the local picking outside of grocery items), and Amazon is the likely internet pure-play winner (unless something new comes along) and so if you can invest in both at prices that makes economic sense (I'm looking at you Amazon) a bet both ways could well be a good strategy.
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