Why Wal-Mart's Locker Program Puts it Ahead of the Competition

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Wal-Mart (NYSE: WMT) announced today that it will install lockers in a test program whereby customers can make a purchase online and collect their items in a nearby Wal-Mart store.

This service isn't new. Amazon (NASDAQ: AMZN) is testing a similar program with Staples and several convenience store chains for a lockers service with same-day pickup. The idea is simple: allow customers to shop online, skip the long lines of retail, and enjoy instant gratification by getting the product the same day the customer places the order.

Why this is a win for Wal-Mart

Wal-Mart's biggest competitive edge is its scale and distribution advantages. The company operated more than 4,000 stores in the United States as of January 2013. But there's more to it than that. In fact, as of 2006, the median distance to a Wal-Mart was 4.2 miles.

In short, Wal-Mart is everywhere, and its customers have only a short drive to collect their goods at any one of Wal-Mart's locations.

Most importantly, Wal-Mart is erasing some of the complications that turn customers away from its deep discounting model. Online shoppers will not have to wait in lines, which are notoriously long at the company's stores. Secondly, shoppers will enjoy same day pickup without ever speaking to a single Wal-Mart cashier, as the transaction will be handled seamlessly over the internet.

Finally, a lockers system allows Wal-Mart to achieve bolt-on revenue growth. The company will attract more online shoppers into its stores, shoppers who may ultimately decide to do some convenience shopping while in the store. How many times have you gone to a store to return a product or pick up an order only to buy something else on the way out?

That's what Wal-Mart needs: organic, same store sales growth that can break the company's ties to the performance of the overall economy.

Amazon should be worried

Wal-Mart's aggressive entry against Amazon isn't good for shareholders of this online retailer. In one move, the Bentonville, Arkansas retailer essentially duplicated Amazon's lockers with potential for distribution far better than Amazon could ever hope to achieve.

Amazon's lockers system is hinged on the ability to get new contracts with competing retailers and businesses. Wal-Mart already owns the real estate necessary to make an aggressive lockers investment without any contracts or negotiations. The company also has the same potential to expand its service with new contracts with other retailers.

Wal-Mart now has the lead. Furthermore, Wal-Mart will force more price competition with Amazon, as shoppers will undoubtedly compare prices when thinking about a pick-up locker purchase.

Investors should watch how online retail develops in the coming months. While Wal-Mart was all but forgotten as an “also-ran,” its competitive drive makes the company worth another look. This isn't a company to be forgotten in the online space. It recently acquired a search and analytics firm, Kosmix, while those in Silicon Valley are reporting aggressive new hiring by Wal-Mart to build its e-commerce division.

Amazon is undoubtedly a great company, but any hopes investors had of a flawless lockers service with no real competition have gone out the window. This could be just the move Wal-Mart needs after reports of a very disappointing start for same store sales in 2013.

Jordan Wathen has no position in any stocks mentioned. The Motley Fool recommends Amazon.com. The Motley Fool owns shares of 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. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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