Is Walmart Dropping Drop Shippers?

September 29, 2018
Is Walmart Dropping Drop Shippers?

Walmart is experimenting with its policies for online orders involving items that are drop shipped directly from the vendor to the customer.  Specifically, it is considering changes to products called “everyday consumables.”

In the past, Walmart would pay for UPS ground shipping to have the item shipped from the vendor directly to customers.  However, as the retail giant searches for increased profitability in the fourth quarter, it has dropped this policy on lower-priced items (items with a wholesale price of $28 or less).

Many vendors have seen their items on Walmart’s web site display as “out of stock,”  even when these items show as “in-stock” in internal Walmart databases.  This has resulted in zeroed sales from the Walmart web site for many vendors with lower-priced items in the everyday consumables category.

This post is based on the Talk Business & Politics article, Walmart.Com Tests New Fulfillment Protocol for Consumables, Some Vendors in Limbo, by Kim Souza, August 30, 2018. Image source: creativenature © 123RF.com.

Discussion Questions:

1. Why is Walmart changing its policies?

Guidance: This relates to the problem that many online retailers are facing—the last mile delivery.  Free shipping (for 2 day or less) delivery is impacting their cost.  With drop shippers, the problem is compounded as Walmart is paying for multiple shipments on one order.  Obviously, this is raising costs and cutting into profitability.  As Walmart is competing on cost with Amazon, it is essential to reduce the cost of the last mile delivery.  This is one possible tactic.

2. What other approaches might Walmart use?

Guidance: The problem is to reduce the cost of the last mile of delivery.  Amazon and Walmart have been looking at a variety of methods to reduce this cost.  These approaches include drones, autonomous vehicles, lockers at stores, lockers at apartment buildings, delivery to car trunks, and employee deliveries, to name a few.  However, eliminating a delivery is the ultimate cost savings.

3. What problems might result from this policy?

Guidance: As Amazon has created a strategy of a large selection of products at reasonable prices, Walmart has been trying to match this approach.  By removing several of these everyday consumables, or forcing their online price higher as the drop shippers pay for shipping, they could end up reducing the availability of online items.  This potential policy needs to be looked at from a strategic perspective, not just a cost savings tactic.  This does raise some interesting questions: should online items be more expensive?  Is Walmart trying to encourage customers to go to the physical store for these everyday consumables?

4. Is Walmart practicing good vendor relations?

Guidance: It doesn’t appear that Walmart is working with vendors of everyday consumables.  Discussion with its vendors as to possible solutions would have been a good starting point.  Instead the vendors found out that they didn’t have any sales from the Walmart web site for a couple of weeks because their products have been marked as “out of stock.”  If the vendors need to change categories, or bundle their products to exceed Walmart’s minimum price, this might have been a good time to experiment with these policies.  Instead, vendors are left wondering what their future is with the Walmart web site.

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