With retail locations near the vast majority of the U.S. population, Wal-Mart could offer shoppers a lower price on online orders picked up in store to drive incremental revenue.

The ink is barely dry on Wal-Mart Stores Inc.’s $3.3 billion acquisition of online marketplace Jet.com, with the acquisition becoming official on Sept. 19, and many in the industry are wondering how exactly this marriage is going to work.

One of the biggest questions analysts and others in the industry have is whether Wal-Mart, No. 4 in the Internet Retailer 2016 Top 500 Guide, is going to eventually incorporate Jet.com’s smart cart pricing model in with its overall offerings.

“I just have a hard time seeing how the smart cart jives with a retailer that is every day low price and no gimmicks,” Laura Kennedy, an analyst at Kantar Retail who tracks Wal-Mart, said in an interview last week. “I understand wanting to give them the lowest price and flexibility, but it’s just hard to believe that Wal-Mart would make its online platform work like that and think about basket economics in that way.”

For those who are unfamiliar, Jet’s value proposition to consumers is this—Jet allows shoppers to save money on online orders by ordering more of a particular product or foregoing options such as the right to return a product. Doing this allows Jet to save money on shipping, which the company passes on to the shopper.

Wal-Mart CEO Doug McMillon appeared last Thursday at a presentation for investors and analysts with Jet.com founder and CEO Marc Lore, who is now president and CEO of Wal-Mart e-commerce.


Wal-Mart hasn’t said when or if it will incorporate Jet.com’s dynamic pricing into Walmart.com. But in his presentation Lore (pronounced lor-EE) told analysts shoppers have responded positively to the smart cart model, and it’s been instrumental in Jet’s early success. That includes the company achieving a $1.2 billion run rate within its first 14 months in business.

“The average basket size, the number of units of a repeat customer, is almost seven,” he told analysts. “It’s about 6.9 units. So we’re seeing that consumers are building these bigger baskets. As a result, they’re saving money. We’re pulling costs out of the overall ecosystem. So it’s not just about the big baskets, it’s about getting them from the same (fulfillment) location.”

Lore also made a point about e-commerce pricing that resonated with me, personally.

“If (the seller) knew that the consumer was down the street, they could raise their hands and say, ‘I can win this. I can cut a little bit off my price because my supply chain cost is so much lower,’” he told analysts on the call.


Here’s why that resonated with me—Wal-Mart acquired Jet presumably to bolster its chances of taking market share from Amazon.com Inc., No. 1 in the 2016 Top 500. McMillon and other Wal-Mart executives realized they couldn’t do it alone, so they bet on Jet, and specifically Lore, to help it slowly chip away at Amazon’s lead.

One advantage that Wal-Mart has over Amazon is its extensive store network. Wal-Mart has 11,539 retail locations around the world, including 4,629 Wal-Mart stores in the U.S. and 654 Sam’s Club locations. Forbes reported three years ago that nearly 90% of the population in the U.S. lives within a 15-minute drive of a Wal-Mart store.

With that in mind, here’s how Wal-Mart can take incorporate Jet’s smart cart model in with its own e-commerce strategy: Offer shoppers a discount on online orders that are picked up in stores. According to Internet Retailer’s Omnichannel Winners of the Top 500 report, it’s a service people are using, with almost 40% of shoppers saying they’ve picked up an online order in store within the past year.

Offering discounts on online orders picked up in stores could have a positive, long-lasting impact in a number of ways. Here’s how:


Save money on shipping costs: Wal-Mart would immediately save money by having associates fulfill online orders directly from store shelves and having shoppers come to the store to pick up their purchases. Because so much of the population lives so close to a Wal-Mart, the retail chain runs less of a risk of upsetting shoppers who feel like they might be missing out by offering this particular option.

Lore himself acknowledged the potential cost savings that Wal-Mart could realize by fulfilling more online orders in store on the call:

“Leveraging the store capabilities with in-store pickup, I think, is a huge advantage because it avoids last-mile delivery costs, which is about 70% to 80% of total delivery cost,” he told analysts. “If you’re able to fulfill stuff in an e-commerce warehouse and you have enough volume to line haul stuff directly to the store, your cost to ship is $1 a package. It’s an incredibly powerful asset.”

Drive foot traffic to stores: The elephant in the room when it comes to retail chains is that store sales aren’t growing as fast as online sales are, and in some cases, the former is declining while the latter is growing.


According to Internet Retailer’s E-Retail Quarterly Financial Spotlight:

“Web sales fueled growth for retail chains during the quarter, as store sales remained dismal for many store-based merchants. The 13 retail chains in this report collectively grew web sales 18.2% in Q2 compared with the same period a year ago—a stark difference from the 0.9% decline in total revenue. Online sales accounted for 11.7% of total sales for the retail chains in this report, up from 9.8% a year ago.”

It’s important to note that that sample size does not include Wal-Mart, which does not break out online sales from store sales in its quarterly earnings reports. On its Q2 2017 earnings call, McMillon told analysts Wal-Mart’s online sales grew 13% year over year during the quarter.

By giving shoppers a financial incentive to go to a physical retail location, Wal-Mart (and other retailers, potentially) could drive sales once they get those shoppers in those stores. That’s because…


Online shoppers will buy more when picking up online orders: A Wal-Mart spokesman declined to provide any data on how many shoppers who use buy online, pick up in store wind up buying more when in store. There’s evidence, however, from other retail chains that a good chunk of shoppers wind up doing so.

For instance, J.C. Penney Co. Inc. (No. 33) reports that 40% of all shoppers who pick up an online order in store wind up buying something else while they are there. That means J.C. Penney was able to derive incremental revenue and additional store traffic that it otherwise wouldn’t have had by offering the buy online, pick up in store option.

A Wal-Mart spokesman told Internet Retailer in an email the company is still in the early stages of its working relationship with Marc Lore and hasn’t shared any plans about offering discounts on online orders picked up in stores.

However, Greg Foran, president and CEO of Wal-Mart U.S., made clear last week that Wal-Mart is giving a lot of thought to the relationship between its stores and its online business.


“Basket economics makes so much sense, doesn’t it,” he told analysts. “It’s really the digital version of what a supercenter does. And that’s a pretty powerful model. Big baskets are efficient. So working with Marc and his team, you’ll see us increasingly get the store assortment and the online assortment to match, not just viewable, but transactable. For a business our size, alignment isn’t easy, but when we do it, we drive true competitive advantage.”

While competing with Amazon may seem to be a daunting task for retailers who sell both online and in store, incorporating Jet’s “smart cart” model into a retailer’s buy online, pick up in store offering could boost a retailer’s sales both in-store and on the web.