Walmart is directing more digital volume through its stores, automated facilities and local delivery network. Greater network density contributed to double-digit incremental margins on additional U.S. e-commerce sales, alongside advertising, membership revenue and paid fast delivery.
In Brief
- Walmart uses stores to fulfill 80% of its e-commerce orders and all fast deliveries.
- Fast delivery grew 48%, while more than half of e-commerce fulfillment volume passed through automated facilities.
- Walmart linked network density and automation to stronger e-commerce economics but did not quantify their individual contributions.
Stores Support a Larger Digital Workload
Walmart’s U.S. stores are carrying a growing share of its digital fulfillment workload as e-commerce becomes a larger part of the business. E-commerce accounts for more than 23% of Walmart U.S. sales, approximately double its share five years ago.
Stores fulfill 80% of the company’s e-commerce orders and 100% of its fast deliveries. Walmart also has inventory and associates within 10 miles of 95% of the U.S. population, giving its local delivery network broad geographic coverage.
This footprint allows Walmart to use stores as nearby fulfillment points while continuing to serve in-store customers. Management said stores are handling more combined unit volume across physical shopping and digital fulfillment than ever before.
The model is also supporting Walmart’s marketplace business. Nearly 50% of its U.S. marketplace activity passed through Walmart Fulfillment Services during the quarter, an increase of almost 400 basis points from a year earlier.
Delivery Growth Adds Network Density
Walmart reported a 48% increase in fast delivery during the quarter. Units delivered in less than 30 minutes doubled from the previous year, while sub-30-minute delivery expanded into 38 U.S. markets.
Seventy percent of e-commerce orders were delivered on the same day or faster. As more orders pass through stores and local delivery services, Walmart said greater network density and utilization are contributing to improved e-commerce economics.
Paid speed provides another source of revenue within the model. Fee-based fast deliveries reached a record 37% of store-fulfilled deliveries during the quarter. Walmart did not disclose the fee level or the margin generated by those services.
The company reported double-digit incremental margins in its U.S. e-commerce business during the first half. This refers to the profitability of additional e-commerce sales, rather than Walmart’s overall e-commerce margin.
Management attributed the improvement to several factors. These included greater delivery density, automation, advertising, membership revenue and growth in fee-based fast delivery. Walmart did not quantify the individual contributions of these factors or disclose changes in route density, cost per order or utilization.
Automation Handles More Fulfillment Volume
Automation has reached a substantial portion of Walmart’s network. More than half of its e-commerce fulfillment volume is processed through automated facilities, while 3,100 U.S. stores receive some level of automated freight support.
Management said supply-chain automation helped streamline inventory flows and contributed to wage productivity during the quarter. The company did not identify the processes responsible for those gains or quantify the labor benefit.
Walmart raised its expected capital expenditure for the financial year to approximately 4% of annual net sales. Management said much of its investment has focused on supply-chain automation and faster fulfillment, although it did not disclose the amount assigned to each area.
The investment also carries a financial cost. Higher depreciation associated with Walmart’s capital program more than offset the reported wage benefits from technology tools and streamlined inventory flow, together with higher self-insurance costs.
Inventory Rises as the Fulfillment Network Expands
Enterprise inventory increased 6% in constant currency, slightly faster than the 5% increase in enterprise sales. Walmart attributed the rise partly to inflation and higher inventory supporting U.S. initiatives, including the positioning of stock across fulfillment points.
Changes in merchandise mix also increased reported inventory value. Walmart is carrying more elevated brands and higher-priced products as it broadens its assortment for different customer groups.
Most U.S. merchandise categories recorded inventory increases of approximately 1% to 4%, with consumables at the upper end of that range. Even with higher overall inventory, several categories were light during June and July.
Walmart did not separate the effects of inflation, merchandise mix, additional units and inventory placement. The disclosure therefore shows higher inventory accompanying the expansion of the fulfillment model without establishing that faster delivery caused the increase.
Density Connects Scale With Fulfillment Economics
Walmart’s results show how its store footprint can support a larger e-commerce business when more digital volume passes through local inventory, automated facilities and delivery services. Network density is one contributor within a broader earnings model, while capital costs and inventory requirements remain part of the economics supporting that growth.
