Walmart, the nation's largest retailer, bolstered and expanded its distribution network in the third quarter, even as rival e-commerce juggernaut Amazon has pared down its vast industrial footprint.
The Bentonville, Arkansas-based chain — which has 4,616 namesake U.S. stores and also owns Sam's Club — provided an update on its supply-chain growth when it reported its fiscal third-quarter earnings Thursday. The company, which enjoyed a 5.2% increase in revenue, to $160.8 billion, said that the expansion of its supply chain with new distribution centers and e-commerce fulfillment centers will significantly boost its profit margins and allow it to get merchandise to shoppers much quicker.
"Over the next several years we expect margins to move higher as we modernize our supply chain and scale higher-margin growth initiatives," John David Rainey, Walmart's chief financial officer, told Wall Street analysts on a conference call. "We've made good progress on both during the quarter. We continue to deploy capital to build technologies and optimize our next-generation supply chain with automation and productivity benefits starting to appear in our results."
Walmart, the biggest U.S. retailer based on revenue, now operates "nine regional distribution centers servicing U.S. stores with varying levels of automation with six more centers in active stages of construction," according to Rainey.
"Currently more than 15% of stores receive merchandise from these facilities, helping to get product to shelves faster and more efficiently," he said. "During the quarter, we opened our third next-generation e-commerce fulfillment center. These 1.5-million-square-feet facilities are expected to more than double the storage capacity, enable 2X the number of customer orders fulfilled daily, and expand next- and two-day shipping to nearly 90% of the U.S., including marketplace items shipped by Walmart Fulfillment services."
The high-tech robotic fulfillment center that Walmart recently debuted is at 2300 E. Belt Line Road in Lancaster, Texas, near Dallas. It will essentially replace a smaller logistics center that Walmart is closing at 5300 Westport Parkway in Keller, Texas.
Retailers including Walmart, Target and Macy's have been building out their supply chains, not only by opening more distribution centers but also using their own stores as micro-distribution centers to get orders to customers quickly, in response at least in part to Amazon's swift delivery. Seattle-based Amazon, as a digital-native company, had to ramp up and create a large supply-chain network from the get-go, making it North America’s largest industrial tenant.
But after dramatically expanding its distribution network during the past few years amid the pandemic, the online retail giant has recently opted to trim back its industrial space and has adopted a new strategy, which it said has helped spike its profits.
During a third-quarter earnings call last month, Amazon said that moving to a regional shipping network from a national hub-and-spoke model had allowed it to trim its national warehouse footprint as well as delivery times and shipping costs. Customers receiving online orders faster helped drive a 13% increase in sales to more than $143 billion and an increase in net income to just under $10 billion in the third quarter, from $2.9 billion for the prior-year period, according to Amazon.
"Both [Walmart and Amazon] have been and will continue to rapidly grow their distribution networks over the long-term, but Amazon expanded much more quickly during the first two years of the pandemic and has since hit the pause button," Adrian Ponsen, CoStar’s director of U.S. industrial analytics, told CoStar News. "Walmart occupies about one-third the amount of distribution space in the U.S. as Amazon, but it clearly needs more and is focusing on the most modern, buildings with high ceilings and dozens of loading docks, which can support a higher level of automation and throughput."
CoStar estimates that Amazon leases or owns 500 million square feet of U.S. distribution space, while Walmart leases or owns 133 million square feet of such space, Ponsen said.
But Amazon has pulled out of more than 14 million square feet of its U.S. distribution space over the past 16 months to slash expenses, or about 3% of its logistics footprint as tracked by CoStar, according to Ponsen.
The CoStar analyst cautioned that it's difficult to make direct comparisons between Walmart and Amazon in terms of distribution as they are very different businesses.
"Walmart has more brick-and-mortar retail space than any other retailer in the U.S. by a long shot," Ponsen said. "So it will probably never need to get to Amazon's scale in terms of distribution space, it can hold an enormous amount of inventory within its stores."
A year ago Walmart said it planned four high-tech fulfillment centers, not only the one mentioned Thursday in Texas but at 3501 Brandon Road, Elwood, Illinois; at 5259 W. 500 N, McCordsville, Indiana; and 1915 Ebberts Spring Court, Greencastle, Pennsylvania.
On the earnings call, Rainey discussed Walmart's initiative to put compact, modular warehouses within or attached to stores that use robotics and artificial intelligence to retrieve the items for an order.
"To support the store-fulfilled digital business, we're on track to have seven stores with automated market fulfillment centers, or MFCs, operational by the end of this month," Rainey said. "These MFCs stock thousands of the most sought-after items and are expected to increase order capacity and productivity while also increasing inventory accuracy, which helps us deliver perfect orders for customers."
With all its advances, Walmart has "lowered store-to-home delivery costs by 15%, even as we've shortened delivery times the same day for more than 80% of our stores and in some cases as quick as 30 minutes," according to Rainey.