Walmart is the world‘s largest company by revenue and the biggest private employer, with over $500 billion in annual sales and 2.3 million associates globally. While the company built its empire on the big-box store model, e-commerce has emerged as a critical growth engine. Walmart‘s U.S. online sales surged 79% in fiscal 2021, fueling investments in digitally-driven shopping experiences.
Walmart‘s e-commerce ascent depends not just on an expansive online assortment and in-store pickup options, but also on the speedy, low-cost delivery of online orders to customers‘ homes. While the company is insourcing more of its transportation and logistics functions, it still relies heavily on third-party shipping partners to serve the "last mile" to consumers.
Delivering the Goods: Walmart‘s Shipping Mix
Walmart works with a diverse set of carriers to provide fast and affordable home delivery, including parcel giants FedEx, UPS, and the U.S. Postal Service. According to e-commerce intelligence firm Rakuten Intelligence, Walmart‘s 2020 shipping mix broke down as follows:
| Carrier | Share of Walmart U.S. E-Commerce Packages Shipped |
|---|---|
| FedEx | 50% |
| UPS | 25% |
| USPS | 13% |
| Pitney Bowes | 4% |
| LaserShip | 3% |
| OnTrac | 3% |
| Other | 2% |
Source: Rakuten Intelligence
As the data shows, FedEx is Walmart‘s primary shipping provider, handling half of its e-commerce orders in 2020. Walmart has a long-standing relationship with FedEx, which provides domestic and international shipping services as well as reverse logistics for customer returns.
However, Walmart has sought to diversify its carrier base and reduce its reliance on FedEx amidst the surge in online shopping during Covid-19. UPS nearly doubled its share of Walmart e-commerce packages from 2019 to 2020, while the retailer also expanded its work with regional carriers like LaserShip and OnTrac in high-density markets.
"FedEx has been and continues to be a great partner, but we have had to make some shifts in how we work together to accommodate our growing online business and best serve customers," a Walmart spokesperson told CNBC.
The Amazon Effect: Matching the Market Leader
Walmart‘s push to provide faster and more affordable delivery options is a direct response to Amazon‘s dominance in e-commerce. Amazon has set a high bar with its Prime membership program, which offers free two-day shipping on eligible items and same-day delivery in select markets for an annual fee.
To remain competitive, Walmart has rolled out its own membership service called Walmart+, which includes free shipping on orders over $35 and same-day grocery delivery for $98 per year or $12.95 per month. Walmart+ launched in September 2020 and has quickly attracted millions of subscribers, though the company has not disclosed specific figures.
"We‘ve seen strong demand for Walmart+ since launch, and the program is resonating well with our customers," said Janey Whiteside, Walmart‘s chief customer officer, on a recent earnings call. "It‘s a valuable offering of benefits at a great value, and we‘re excited about the potential to grow the program over time."
Walmart+ is still far behind Amazon Prime, which has over 150 million paid members worldwide and accounts for an estimated 40% of all U.S. e-commerce sales. But Walmart aims to leverage its unique assets, including a network of 4,700 stores that can serve as pickup and delivery hubs, to provide a compelling alternative.
"Walmart‘s biggest advantage is its ability to offer a true omnichannel experience that blends online shopping with in-store pickup and returns," said Marc Wulfraat, president and founder of supply chain consulting firm MWPVL International. "That‘s something Amazon can‘t easily replicate."
Still, matching Amazon‘s speed and price on shipping is a costly endeavor. Walmart‘s U.S. e-commerce business has yet to turn a profit, losing an estimated $2 billion in 2019, as the company invests heavily in fulfillment infrastructure and delivery capabilities.
Walmart‘s shipping costs as a percentage of net sales reached 14% in 2020, compared to 5% in 2015, according to FreightWaves. Amazon‘s shipping costs are even higher at 27% of net sales, reflecting the e-commerce giant‘s massive investments in logistics and transportation.
Bringing It In-House: Walmart‘s Delivery Infrastructure
To gain more control over the customer experience and rein in shipping costs, Walmart is steadily building out its in-house delivery network. The company now has over 100 e-commerce fulfillment centers in the U.S., up from just 20 in 2016, and plans to open more in the coming years.
Walmart has also significantly expanded its private trucking fleet, which now includes 8,000 drivers and 80,000 trailers, making it one of the largest in the U.S. The fleet handles store replenishment as well as some direct-to-consumer deliveries of bulky e-commerce items.
Walmart‘s private fleet includes 8,000 drivers and 80,000 trailers. (Source: Walmart)
"We‘ve been operating our private fleet for decades, but have really accelerated its growth in recent years to support our e-commerce business," said Greg Smith, Walmart‘s executive vice president of supply chain, in a recent interview. "It gives us a lot more flexibility and control."
Walmart is also experimenting with new delivery models, such as autonomous vehicles and drones, to drive greater efficiency. The company recently partnered with startup Gatik to deploy autonomous box trucks in Arkansas and Louisiana, and launched a pilot with Flytrex to deliver groceries via drone in North Carolina.
These investments are part of Walmart‘s broader push to verticalize its e-commerce supply chain, from procuring more inventory directly from manufacturers to chartering ships amidst ocean freight capacity constraints. The goal is to compress lead times and reduce reliance on third parties.
"Walmart is laser-focused on optimizing its end-to-end supply chain to offer customers the broadest, most affordable, and most accessible assortment of goods," said Wulfraat. "Controlling more of the upstream will be critical to providing the level of service customers expect."
Partners Still Play a Key Role
Even as Walmart invests in insourcing, the company will continue to lean on its shipping partners for the foreseeable future. Developing a comprehensive, vertically-integrated delivery network is capital-intensive and will take many years to fully realize.
"Walmart is certainly moving in the direction of greater self-distribution, but there‘s still a big role for FedEx, UPS, and others to play," said Dean Maciuba, managing partner at consulting firm Last Mile Experts. "Building out a truly end-to-end delivery network is a multibillion-dollar undertaking."
Maciuba noted that Walmart will likely continue to use a mix of internal and external resources to provide different service levels at optimal costs. For example, the retailer could tap its private fleet for high-volume, repeatable routes while using FedEx and UPS for more time-sensitive, long-distance deliveries.
Walmart is also expanding its work with crowdsourced delivery platforms like DoorDash, Postmates, and Instacart to provide on-demand delivery of groceries and essentials. These partnerships give Walmart access to flexible last-mile capacity without taking on the fixed costs of hiring drivers or purchasing vehicles.
"Gig platforms have become an important part of Walmart‘s delivery ecosystem, especially for same-day orders," said Maciuba. "They provide a variable cost model that can scale up or down quickly based on demand."
The Bottom Line
Walmart‘s online sales growth shows no signs of slowing down, putting pressure on the company to provide ever-faster and more affordable delivery options. While the retailer is investing heavily to insource more of its supply chain and transportation capabilities, it will continue to work closely with major carriers and last-mile partners.
The endgame for Walmart is to match the bar set by Amazon on shipping speed and cost, leveraging its unique omnichannel assets like a vast store footprint. But catching Amazon will require billions in sustained investment as well as operational discipline.
"Walmart‘s supply chain transformation is a journey, not a destination," said Wulfraat. "The company has made significant progress, but there‘s still a lot of work to be done to truly rival Amazon‘s logistics prowess."
One thing is clear: Fast and free shipping is now table stakes for any retailer that wants to win in e-commerce. As the market leader in the category, Walmart has no choice but to deliver the goods.
