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More warehouses, faster delivery keys to Walmart's plan to overtake Amazon

Despite different expectations from its shareholders than Amazon, Walmart isn’t pausing in its planned expansion and investment in e-commerce. Adding giant warehouses and increasing delivery efficiency through technology are key to Walmart’s strategy in the race to build market share, according to Reuters.

By the end of 2016, Walmart will have 1o giant distribution warehouses around the U.S. compared to Amazon’s 40. Last year, Amazon had e-commerce sales of $107 billion, almost 8 times Walmart’s $13.7 billion of online sales. Amazon isn’t sitting still, though. The current online sales leader is planning five more one-million-plus square foot warehouses in the first quarter of 2017. Overall, Amazon currently has 104 warehouses of all sizes, with plans for 18 more.

In addition to its own giant warehouses, Walmart has 160 stores that serve as distribution centers for online items and other stores that stock online orders. So while both online companies have many smaller to medium-sized warehouses and distribution centers, Amazon is way ahead on the largest structurtes. The mega-warehouses add efficiency by stocking inventory sufficient that most orders can be included in a single shipment.

Related: Walmart is cutting 7,000 jobs due to automation, and it’s not alone

The key to growth for both companies isn’t just large buildings. Technology, such as robotics to add speed and efficiency inside the warehouses, is the second major component as both companies scale up. Reuters cites reports from supply-chain consultants that in the past year Walmart has added automated product sorting and item tracking that compete well with Amazon’s robotic order retrieval and packing technology.

While Walmart focuses on increasing warehouse space and technology, it must be mindful of shareholder scrutiny. Online sales currently account for only 3 percent of Walmart’s business. As it makes progress with e-commerce, profitability remains in focus. For example, according to Justen Traweek, Walmart vice-president of e-commerce supply chain and fulfillment, even though Walmart could ship orders in one day to 70 percent of Americans, it hasn’t offered that service to customers because at this time it cannot offer one-day shipping profitably.

“Anything that crimps Wal-Mart’s profits in the short term will not be met well by their shareholders, so trying to find a cost-effective shipping solution is a sensible approach,” said Charles Sizemore of Sizemore Capital Management, LLC. He also said that Amazon investors give the company more “leeway to lose money in the hunt for longer-term growth.”