By Sarah Nassauer

A decade ago, Walmart's thousands of stores across the country made it look like a dinosaur in the online-shopping era. Now the retail giant is mounting one of the few serious challenges to Amazon.com's dominance in e-commerce, and those very stores are central to its strategy.

Walmart delivered five billion items on the same day they were ordered last year, double the number delivered in 2023 . It can now deliver most of the 120,000 products in its sprawling supercenters, including meat, eggs and milk, to 93% of U.S. households the same day, sometimes in hours.

Amazon doesn't release figures that allow an exact comparison of its same-day delivery reach. But Walmart's sprawling delivery network, which in some areas is faster than Amazon's, represents a leap that would have been unimaginable just a few years ago.

"I am very, very grateful that we have 4,700, roughly, stores," which now double as fast-delivery hubs, John Furner, chief executive of Walmart U.S., said in an interview. "It's something that perhaps a few years ago people would not have expected we would have been able to deliver at scale."

To make most of those speedy deliveries, the retailer relies on thousands of freelance drivers using a system called Spark, created by Walmart, which uses an app to coordinate online orders from its fleet of superstores.

About 41% of all U.S. e-commerce sales go through Amazon, a much bigger share than Walmart's 9%. Amazon could overtake Walmart this year as the country's largest company by revenue if sales trends persist. Walmart reported $681 billion revenue in 2024; Amazon's was $638 billion.

But over years of attempts, tests and failures, Walmart has carved out a niche that has Amazon working to catch up -- fast delivery of online orders that often include inexpensive groceries, and increasingly other items it sells in its stores, such as clothing, decor, batteries and prescription medicines.

An Amazon spokeswoman declined to disclose the share of U.S. households that can now receive its same-day shipments. Shoppers in more than 3,500 U.S. cities and towns have access to grocery delivery in some form through Amazon, she said, and the company can deliver millions of items the same day. The company says it delivered over two billion items it calls "everyday essentials," such as cleaning supplies and paper towels, the same day or next day in the U.S. last year. Those figures don't include fresh groceries, but it's working to rapidly add those items to its same-day delivery warehouses, she said.

"I don't think that Walmart will ever really get to the sheer size Amazon has online," said Blake Droesch, retail analyst for Emarketer, which tracks e-commerce. "But Walmart is one of the only retailers that's had the capital and strategy to marshal a true defense."

Walmart overall is profitable, but its e-commerce operations, which generate 18% of company revenue, aren't. Executives have said e-commerce is getting closer to profitability, but they haven't set a specific timeline for when they expect to reach that milestone. They are building other, more profitable businesses beyond traditional retail, such as advertising. In that way they're operating like a tech startup -- much like Amazon, which famously didn't report a profitable year until nearly a decade after it started.

Investors haven't been scared off. Walmart's stock has doubled in two years to record highs and its market value is nearly $737 billion. Amazon's market capitalization is greater than $2.1 trillion.

If the discount retailer can provide high-quality products like Wagyu beef and appealing apparel "at a Walmart price in a very convenient fast delivery service, I think it's a winning proposition," said Furner.

Walmart's spark

Over the past decade, Walmart executives realized they needed to use their grocery business to fend off Amazon's expansion. Walmart gets more than 50% of its U.S. revenue from selling meat, eggs, lettuce and other groceries. It has used its scale to drive down prices for those items, which draw shoppers for regular trips.

That setup works when shoppers also pick up higher-margin items in the part of the store insiders call "the other side of the box": clothing, home decor or small appliances. Walmart executives hoped a version of the same system could work online -- use groceries to lure online business away from competitors, then make money on bigger, more profitable purchases.

"We think we've done the harder part," said Doug McMillon, soon after he became CEO in 2014. "We have the stores, the associates and the expertise in a physical world that others are going to need to build out."

When McMillon took the top job, Walmart was running a small test in Denver of a service that allowed shoppers to buy groceries online and pick them up in store parking lots. Dubbed "online grocery shopping," it started with a handful of stores that offered both pickup and delivery.

Under McMillon, Walmart seized on the idea of using pickup to grow online more profitably. Around 1,000 of its 4,600 U.S. stores offered the pickup service by 2017. Internally it was rebranded as "online grocery pickup" or OGP, a moniker that many Walmart workers still use today.

Executives knew shoppers loved fast grocery delivery, even if pickups offered better profit margins. By 2016, Walmart was working with driver services such as Uber and Lyft, tacking deliveries on to its parking-lot pickup system. Those relationships proved complex and costly for both parties, and Walmart cycled through several partners.

That led it to build its own system, called Spark, named after the company's six-pointed yellow logo. In 2018 Walmart announced a test of its own network of independent drivers to expand its grocery-delivery reach, which at the time covered about 40% of U.S. households. Today tens of thousands of Spark drivers, who aren't Walmart employees and are paid by the delivery, make the majority of the retailer's same-day deliveries.

Walmart pays Spark drivers about $10, plus tip, to pick up orders from Walmart workers at stores, and sometimes collect items from shelves. If an order includes many items or is a longer drive, the payment goes up.

Creating the network contributed to shrinking profit margins for Walmart as wages were rising over the past decade. It created operational snafus when Walmart workers picking products for online orders and roving robots scanning shelves clogged store aisles, issues Walmart has mostly managed. Impulse purchases all but disappeared when shoppers skipped the traditional checkout lines. But executives and Walmart's board decided the bigger risk was that people would stop shopping at Walmart altogether.

Overnight Bud Light

Samantha Atkinson became a Spark driver last year to supplement her income running a small online cosmetics company. Five days a week, she spends about four hours in the morning crisscrossing southeast Idaho delivering groceries from Walmart in her black Nissan Murano.

The 43-year-old mother of three young-adult daughters likes to start as the sun comes up to have her pick of the most lucrative orders that may have been loaded into the Spark app overnight, she said. Walmart gradually increases how much it pays for undelivered orders to entice drivers to take them.

Often those orders were placed late the night before, but didn't get delivered, so include beer or cold medicine. "I often wake them up," said Atkinson. "I'm like, 'Hello. I have your Bud Light!' "

Typically she earns around $100 a day before paying for gas and other expenses, collecting three or four orders at a time from the store parking lot. She aims to earn at least $15 for a basic delivery that isn't too far away, she said, which includes the pay from Walmart and any tip.

Her cosmetics business includes many hours alone in front of a screen, she said. Making Walmart deliveries, she said, "lets me connect with people in a weird, unexpected way."

Extending the range

Walmart's same-day delivery coverage has stretched from about 76% of U.S. households two years ago to 93% today. It now reaches into small towns such as Elizabethtown, Pa., (population: 12,000) and Trenton, Texas (population: 815).

To expand the range, Walmart spent years working on technology that could more accurately predict exactly how far the delivery service could reach without food spoiling or drivers becoming frustrated, said Parvez Musani, a technology executive at Walmart who has worked on the project.

For example, a ride can take longer in rush-hour traffic or a dense urban area. "It's seamless to the drivers," said Musani. The technology designs delivery areas using shopper and census data, driving time and other factors. Walmart started fully using it in late 2024.

The system allowed Walmart to increase its delivery radius in a more precise way than its previous, ZIP Code-based approach, said Musani.

Managers have had to make adjustments to reduce delivery mistakes. For example, when Walmart workers load the car of a delivery driver, one order generally goes in the trunk, the second in the back seat and the third in the front passenger seat to prevent delivery errors.

The transition to online delivery has been rough and expensive. Walmart paid $3.3 billion in 2016 for Jet.com, an online seller of groceries and other items, which it later shut down. It invested heavily to build a personal-shopping and fast delivery service for wealthy New Yorkers, only to shut it down two years later. Walmart still uses drivers from other companies such as Roadie and Uber Eats in some areas to meet demand, but more than 80% of deliveries come from its Spark network.

More than a third of Walmart's online customers have been willing to pay an additional fee on top of typical delivery charges to receive their items in a few hours, John David Rainey, Walmart's finance chief, said last month during an earnings call. If shoppers aren't members of the Walmart+ subscription program, fees average around $10 per delivery, plus tip.

High-end shoppers

Walmart generally charges the same price whether people order online or shop in person. That's an extension of its longstanding practice of keeping prices the same across its stores, regardless of geographic region.

In addition, speedier shipping and more premium products have helped the company in recent quarters make inroads with higher-income shoppers, which it defines as households that earn more than $100,000. It also has found its way into some of those homes because American Express offers the Walmart+ program as a free perk to Platinum cardholders.

Amazon continues to expand rapidly. In addition to over 1,000 shipping facilities around the U.S., it owns Whole Foods grocery stores, and more than 200 million people globally subscribe to its Prime membership. The similar Walmart+ offers free delivery for orders over $35.

But Amazon has struggled to dominate the fresh-food delivery business. Some early efforts such as Amazon Fresh grocery and Amazon Go convenience stores have been redesigned or scaled back. It's tried several models for delivery through Whole Foods and Amazon Fresh.

Amazon executives are still debating if they can build a dominant grocery business through delivery or if they need hundreds more stores, according to people familiar with the situation.

The company is testing placing an Amazon Grocery store next to Whole Foods locations, where shoppers can buy Diet Coke, Doritos and other nonspecialty brands, so they don't have to go to a competing store to complete their grocery shopping. And Amazon has added milk, eggs and 3,000 other frequently purchased fresh grocery items into its same-day-delivery fulfillment centers in Phoenix, Orlando, Fla., and Kansas City, Mo., so they can be purchased at the same time as nongrocery Amazon orders. By the end of the year, most of its same-day fulfillment sites will have a similar assortment, said the spokeswoman.

To offer large-scale grocery deliveries, "you have to have a perishables business and a mass physical presence," Amazon CEO Andy Jassy told analysts on a conference call last spring.

Ramchandra Apte, a software engineer, recently moved from Chicago into a New Jersey apartment near New York City. When Walmart offered a discount for Walmart+ and higher-tier subscription called InHome, he signed up, even though there's a Whole Foods closer to him than Walmart.

Whole Foods is "more expensive, and I have to carry all the groceries," said Apte, who doesn't own a car. "It's a pain."

He still orders nongrocery items from Amazon but finds Walmart delivery is a bit faster for groceries. "I make plenty of money," the 23-year-old said. "I am just trying to save time mostly, and also get good value for the money I spend."

Write to Sarah Nassauer at Sarah.Nassauer@wsj.com

(END) Dow Jones Newswires

March 07, 2025 20:00 ET (01:00 GMT)

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