Walmart's Jet is testing free same-day delivery in NYC

Dive Brief:

Walmart will be joining its Jet e-commerce division in testing free same-day delivery in the New York City area, a Walmart spokesperson told Retail Dive Friday.
Months after terming free two-day delivery "table stakes" for e-retailers, Walmart U.S. e-commerce chief Marc Lore told attendees at an advertising industry event in New York that Jet offers free same-day delivery in the area now and that Walmart will do so "very soon," Bloomberg reported. Ravi Jariwala, senior director of public relations at Walmart.com, clarified to Retail Dive that the Jet service is only a test, but has already delivered "many" items to customers in the area.
More than half (51%) of retailers say they now offer same-day delivery, up from 16% last year, and within two years 65% plan to offer it, according to the "2017 Digital Commerce Benchmark Survey" from retail management consulting firm BRP. But only Amazon provides that for free with a minimum order, and only to Prime members.

Dive Insight:

While Bloomberg on Thursday reported that, according to Jet founder Lore, free same-day delivery service is already provided by Jet, Jariwala said that's only in the testing phase, though he confirmed that Walmart tests in the same vein will also begin there soon. "This isn’t a formal program that’s out there for every single customer," he told Retail Dive, noting that Walmart is constantly testing various services and programs, for its flagship and for Jet, but doesn't always publicize them.

Before its acquisition by Walmart last year, Jet spent heavily on customer acquisition in large urban areas of the U.S. Earlier this summer the company announced it’s installing “smart locks” from Latch in 1,000 apartment buildings in New York City, allowing building managers know when someone arrives at a building, allow them in as needed or provide time-coded limited access. But Walmart itself has little penetration in large cities, especially New York City.

Walmart itself is testing grocery delivery in areas outside of New York, according to Jariwala. Deliveries require a $30 minimum online order (not an issue for customers, he said, because they tend to be weekly grocery shopping that easily tops that). But it's not free: whether same day or slower, delivery costs $9.95, he said. The grocery delivery is being tested in a few of the areas where the retail giant already offers free store pick-up of online orders, Jariwala noted. In some areas Walmart employs its own delivery drivers, in others the retailer is working with Uber, he also said.

Lore’s e-commerce ambitions — he is increasingly seen as Walmart’s answer to Amazon founder Jeff Bezos — have boosted Walmart’s e-commerce sales. The retail giant has been on an acquisition tear since buying Jet. In February, Walmart bought online outdoor retailer Moosejaw for $51 million in cash, in March announced the acquisition of vintage-inspired online women’s apparel Modcloth and in June bought menswear site Bonobos for $310 million. Last month there were rumors that Walmart is also interested in acquiring beauty subscription service Birchbox, though both companies have declined to comment to Retail Dive.

That has pumped up sales, but also hit profits, a major change for the world's largest and arguably most efficient retail distributor of goods. Walmart U.S. net e-commerce sales in the second quarter rose 60% and GMV grew 67%, thanks in part to an expanded assortment of more than 67 million SKUs. But the gross margin rate in the quarter for the U.S. segment declined five basis points, with price reductions and e-commerce costs more than off-setting new deals with vendors, Walmart CFO Brett Biggs told analysts last month.

Wall Street so far has loved the changes, but profitability, a sticking point even for Amazon's retail operations, could become an issue for Walmart, especially if it continues to pursue fulfillment services as expensive as free same-day delivery. "The markets will applaud a sustained pattern of increasing traffic and sales across all platforms, which they are delivering," retail analyst Nick Egelanian, president of retail development consultants SiteWorks International, told Retail Dive in an email. "My long term outlook for profitability in their commerce operation remains cloudy though."