Here's Why Wal-Mart Is Losing the Digital Battle

By Markets Fool.com

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Wal-Mart's own trucks supply its stores. Image source: Wal-Mart.

Wal-Mart (NYSE: WMT) knows it has a digital problem.

No company spends $3.3 billion to buy a money-losing start-up and then puts its boss in charge of its entire digital operation if things are going swimmingly. That, however, is exactly what Wal-Mart did when it bought Jet.com and placed its CEO, Marc Lore, in charge of Walmart.com.

It was a bold, maybe even drastic move that makes sense when you consider how badly Wal-Mart has fallen behind Amazon.com(NASDAQ: AMZN) in the online space. Buying Jet.com and giving Lore the top job across the company's entire digital portfolio is about bridging that gap.

It's a massive task and Lore has to figure out how to more than double Wal-Mart's delivery speed while also increasing its efficiency.

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How far behind is Wal-Mart?

Amazon has made two-day shipping an industry standard. Members of the company's Prime service, which costs $99 a year, get free two-day shipping and in many cases Sunday delivery. And, yes, Prime is a premium service, but the latest estimate from Consumer Intelligence Research Partners puts membership at 63 million people, so that's the standard Wal-Mart has to meet.

A recent survey from Internet Retailerplaced Wal-Mart's current average delivery time at 5.5 days. That's more than twice the Prime promise, but the problem is actually worse.

What it's like to order from Walmart.com

As a Prime member, I order from Amazon a lot -- probably close to 100 orders each year. Each of those orders routinely shows up within two days and the only problem I have ever experienced is that every now and then the size of the box seems like an odd choice. That's more an issue for the company than for me, as receiving something small in a big box does not change that I actually received it.

My recent Wal-Mart order was not nearly as simple. On Sept. 5, I placed an order for six items: a six-pack of Mrs. Renfro's Medium Salsa, a package of Wal-Mart's house-brand gluten-free lasagna noodles, a container of 4-C gluten-free Italian bread crumbs, a box of gluten-free Bisquick, a box of No. 2 pencils, and a pair of pencil sharpeners. The items cost a total of just under $50 (Wal-Mart's threshold for free delivery) so $5.97 was added in shipping charges.And while Amazon would have sent my entire order in one box arriving exactly two days later, Wal-Mart sent my order in four separate boxes, arriving on three separate days, with one piece of my order marked for in-store pickup.

On the plus side, the No. 2 pencils showed up on Sept. 7, an impressive two-day shipping time. The lasagna noodles and gluten-free bread crumbs arrived on Sept. 9, four days after I ordered, and the salsa and Bisquick both were delivered at different times of day on Sept. 12 -- seven days after I placed the order.

The two pencil sharpeners -- $0.97 cost to me -- were set for in-store pickup and, to Wal-Mart's credit, were available on the same day I placed the order.

Wal-Mart has some work to do

The problem is that Amazon built its infrastructure to ship orders to individuals. Wal-Mart developed its shipping and logistics to supply stores. Shipping some salsa to my house is a very different problem than stocking an entire Wal-Mart.

Ultimately, Lore's challenge as Wal-Mart's new digital boss is leveraging both the company's distribution warehouses and its stores to match Amazon's delivery times without having scenarios where six items are delivered in four separate boxes.

Currently Amazon has a sleek, efficient system built for exactly what it does -- send orders out with a two-day shipping time. Wal-Mart has a Frankenstein of a delivery system patching together methods that were not originally built to deliver individual orders.

Perhaps Lore and the Jet.com team can fix these issues, but as Internet Retailer showed through research and my experience showed anecdotally, Wal-Mart has a very long way to go.

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Daniel Kline has no position in any stocks mentioned. He has not made his lasagna yet. The Motley Fool owns shares of and recommends Amazon.com. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.