What do the Sam’s Club closures tell us about Walmart’s e-commerce strategy?

  • Lewis King
  • January 15, 2018
  • 0

It’s easy to become inured to the pace at which e-commerce is transforming our economy. But news from Air Cargo World’s own backyard – that Walmart subsidiary Sam’s Club announced that it was closing three locations in the Seattle area as part of a 63-store retrenchment across the U.S. – was an especially prescient reminder of this trend, especially for folks who shelled out up to US$100 for their membership cards.

What stood out in the press release from last week was the news that 12 of the stores slated for shuttering are going to be converted into “e-commerce fulfillment centers.” The first converted center will be located in Memphis, Tennesee, but the company didn’t specify the remainder.

“Transforming our business means managing our real estate portfolio, and Walmart needs a strong fleet of Sam’s Clubs that are fit for the future,” said John Furner, president and CEO of Sam’s Club.

The Sam’s Club announcement touches on some transformations that fit into a larger paradigm shift that we’ve been covering here at ACW for some time. The first takeaway is that the converted Sam’s Club fulfillment centers are another chapter in Walmart’s multibillion dollar e-commerce arms race against Amazon.com. As online sales become a bigger part of Walmart’s revenue, the need for more regional warehouses – and less conventional retail – will continue to grow.

Image courtesy of Wikimedia Commons

Whether or not the reconfigured Sam’s Clubs will give Walmart the leg up it needs to compete with Amazon has yet to be determined, but the transition addresses another problem Walmart faces – a lack of space.

It’s important to note here that Furner used the language, “managing our real estate portfolio,” which fits the narrative we’ve seen lately – that ‘on-demand’ e-commerce is causing a crunch in warehousing space, especially near urban centers. Rising demand for two-day shipping has pushed up the price of warehousing space in or near cities – close enough to deploy last-mile deliveries – to more than US$250,000 per acre, up 25 percent from 2016 to 2017.

It wouldn’t be surprising if one of those Seattle stores is in line for an e-commerce makeover as well.

On the national level, U.S. warehouse prices have more than doubled, to more than $100,000 an acre, from about $50,000 in 2016, according to data from real estate firm CBRE.

The on-demand trend is forcing e-tailers to reconsider their warehousing strategies. Brick-and-mortar stores are increasingly serving a dual function, as both retail outlets and e-commerce warehouses. In some cases, such as Sam’s Club, retail outlets are undergoing full conversions to manage e-commerce.

That’s a trend we can expect to see accelerate. The economic fundamentals driving this trend aren’t likely to change any time soon. In fact, as on-demand evolves from being a “perk” to an expected part of online shopping, warehousing near urban centers will grow increasingly expensive.

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