Target and Walmart are investing in supply chain tech to compete on delivery

“If I could change anything about how we’re perceived today, it’d be that more people know about our breadth of assortment online and our increasing delivery speed,” Walmart CEO Doug McMillion said during the company’s most recent earnings call. Last quarter, Walmart continued to expand its same-day delivery to reach 93% of U.S. households, according to its fourth-quarter earnings release — a much larger estimate than about a year earlier, when the company had said it reached more than 80% of households. The company also launched same-day pharmacy delivery last year.

“We aspire to grow same-day delivery to be another unmistakably Target offering that becomes synonymous with the elevated joy, the value and experience that we’re known for,” Cara Sylvester, Target’s evp and chief guest experience officer said during the company’s March 4 earnings call.

For the biggest retailers in the space, like Target and Walmart, it’s become an arms race to offer the fastest and most convenient same-day delivery options. But even smaller players have realized how crucial improving fulfillment times and offering accurate delivery estimate arrivals are to maintaining customer loyalty. But to get there, retailers are making a myriad of investments. They’re retooling their distribution facilities and stores with automation. They’re investing in tech to get more granular insight into their inventory levels. And, overall, they’re figuring out what they need to build a reliable delivery network.

Tech upgrades boost both speed and accuracy

Melissa Minkow, global director of retail strategy for information technology company CI&T, said data management, demand forecasting and analytics capabilities are critical investments for retailers so they can improve forecasting in their supply chains and not overallocate to certain stores, thus improving speed and economics.

“It’s not just about literal distribution,” she said. “It’s also about getting the data accurate enough so that you’re not ending up with stock-outs or excess inventory.”

Walmart has been building five new high-tech fulfillment centers since 2021, the company said last year — some have since opened. It’s also expanded existing distribution centers, by adding 500,000-plus square feet of automation per site to increase capacity for fresh products, and retrofitted another facility in Florida with robotics. In addition, the company rolled out a new platform to better manage its delivery data last year, Fast Company reported.

Additionally, this year, the company announced artificial intelligence and robotics firm Symbotic would develop and improve systems to accelerate pickup and delivery options at Walmart stores, a $520 million investment for the retailer.

This month, Target also said it is updating or expanding its supply chain network to move inventory with more speed, accuracy and efficiency.

“That includes modernizing the company’s core inventory management system with AI-powered technology solutions that will improve reliability and reduce out-of-stocks,” the company wrote in a news release. “The company is also implementing several new package delivery solutions, leveraging existing stores and supply chain assets and its Shipt capability, to further improve delivery speed to consumers.”

Dick’s Sporting Goods president Lauren Hobart said on an earnings call in March that the retailer is expanding the use of RFID in the store to further improve fulfillment speeds to make delivery speedier and more efficient. And Advance Auto Parts implemented services from last-mile delivery firm OneRail and IBM to have a real-time view of its inventory of 2 million auto parts, according to a post this month from IBM. As a result, the repair shops saw a 12% reduction in transportation costs and a 27% sales increase for its 30-minute delivery segment, according to IBM.

Down-to-the-minute delivery estimates

Specialty retailers may have different goals for their supply chains, such as communicating more accurate delivery times to customers or quoting precise delivery dates instead of a range of dates.

For example, Etsy said last year it began offering more precise delivery dates to shoppers after launching a new machine learning model. And Best Buy has been rolling out delivery tracking system for minute-by-minute updates.

“We know our customers’ time is extremely valuable, and we’re proud to bring a level of convenience to technology delivery and installation that nobody is currently providing,” Best Buy’s chief digital, analytics and technology officer, Brian Tilzer, said in a statement last year.

“It’s something of a Holy Grail to be able to deliver that level of accuracy to consumers,” said Tom Enright, a retail supply chain analyst for Gartner, adding that it may actually be less complex for smaller retailers as they have fewer distribution centers and stores and, thus, fewer complications in figuring out where to ship items from. “It’s a case of taking care of the things they control and then working with the right [shipping] provider so that they can do their part of the bargain.“

Still, Enright cautioned that implementation of software for precise delivery estimates can take time and supply chain software vendors can take up to a year to roll out applications.

Different strokes for different retailers

But just because the largest retailers are boosting same-day delivery doesn’t mean every retailer wants it or should implement it. And for retailers that don’t want to build out their own same-day delivery of network, there are plenty of other delivery startups like DoorDash and UberEats that work with a wide variety of retail partners, ranging from CVS to Sephora to The Vitamin Shoppe to Lowe’s.

Minkow said some retailers may wish more for certainty in pricing and delivery speeds, especially in a more uncertain economic environment. Even in grocery, where it makes more sense to deliver products within an hour, Minkow admits customers likely will drive to the store within that timeframe.

“A company like Walmart, for example, they have some inherent scalability baked in because the demand is there, just given how many shoppers they have every day,” Minkow said. “Smaller chains are not necessarily going to see the demand to make the payoff worth it.”

Gartner’s Enright said that three to five years ago, more retailers had been trying to race to keep up with Amazon. Since then, he said, they have found that customers actually don’t mind: 70% of e-commerce spending comes from people who wait more than three days for shipping, according to the firm.

Walmart CEO Doug McMillon said in its earnings call Feb. 20 that more than 30% of its orders came from customers who paid a convenience fee to receive their deliveries in less than one hour or less than three hours.

The share of customers paying for Walmart’s less-than-three-hour delivery may be growing, but 30% is still a minority, and ultra-fast fulfillment is more relevant to Walmart as it stocks grocery items and produce. Timeliness is more of a concern with those products than with general merchandise; food may be perishable, and customers may have last-minute grocery needs.

“There’s no problem at all in not being able to deliver to every corner of the U.S. the same day because you’re not going to have a huge amount of demand for it to happen anyway — three to seven [days] is the average we’ve seen most companies offer,” Enright said. “Consumers just don’t see the urgency in the vast majority of cases.”