The discount program should help drive Wal-Mart’s online shoppers into stores, but experts caution that Wal-Mart may be spreading itself too thin.

Wal-Mart Stores Inc.’s new plan to discount online orders shipped to its stores for consumer pickup will likely make its stores more of a factor in its e-commerce business.

Retail industry experts say that more interaction between offline and online channels is a step in the right direction for the retail giant.

“Wal-Mart’s announcement is another example of a retailer leveraging its physical stores to provide consumers with more options to receive online orders quickly, and we view this move positively,” writes Charlie O’Shea, lead retail analyst at Moody’s.

The Pickup Discount, which will begin Wednesday, offers shoppers a varying discount on 10,000 online-only items. Items included in the discount program will grow to more than 1 million SKUs by the end of June.

Wal-Mart president and CEO of U.S. e-commerce Marc Lore writes in a blog post that the retailer, No. 4 in the Internet Retailer 2016 Top 500 Guide, made the move in part to give shoppers an additional shipping option. The discount for in-store pickup also saves the company its shipping costs.

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“We can remove the last-mile delivery costs (that represent the lion’s share of the costs to ship products to customers’ homes) when we leverage our fleet of more than 6,700 trucks to deliver products directly from fulfillment centers to our 4,700 stores,” Lore writes. “This means, quite simply, it costs less for us to ship to stores. So, our customers should share in those savings.”

A Wal-Mart spokeswoman declined to specify how much the retailer saves by shipping to store versus shipping to a shopper’s home. Wal-Mart also declines to detail how it decides product discounts. Examples given in Lore’s blog knock 5.0% ($7.40) off a $148.05 car seat, and trim 2.9% ($50) from a 70-inch TV that sells for $1,698.

This seems like a very worthwhile experiment.
Steve Dennis, retail executive

There’s not a concrete formula that shows how much a retailer can save by shipping an item to one of its stores and having a shopper pick it up rather than shipping the item to a customer’s home.

Steve Dennis, a longtime retail executive who spent more than a decade with Sears Holdings Corp. (No. 14) and was most recently a senior vice president at Neiman Marcus (No. 36), says that unless an excessive number of online orders is being shipped to a single store location, Wal-Mart should see some positive impact to its overall bottom line. That’s important because while Wal-Mart’s online sales in the U.S. were up by 29.0% year over year in the fiscal fourth quarter, its profits declined 7.2% year over year for fiscal 2017 ended Jan. 27.

“Given that so much of e-commerce isn’t profitable—and so many retailers are desperate for traffic—this seems like a very worthwhile experiment,” Dennis says. “When the volume is relatively low existing facilities can likely be used and little additional stuff would need to be added. The physical capacity to handle a large number of parcels and the labor to manage this all could get to be an issue.”

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That’s not to say that the strategy is ideal, however.

Offering lower prices on online orders that are shipped to stores will generate opportunities for Wal-Mart associates to upsell online shoppers that enter a store, but experts say Wal-Mart’s store employees must be properly trained on how to take care of the influx of online shoppers.

“This all hinges on the store operations,” writes Michelle Grant, head of retailing at Euromonitor International. “If people have a bad experience with click and collect, they’re probably not likely to try it again.”

Plus, retail stores also are not necessarily set up to accommodate online shoppers’ needs.

“The picking of the [online] order and dealing with customers gets a little trickier because stores aren’t set up to do so efficiently,” Dennis says.

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Wal-Mart also runs the risk of undercutting itself on pricing, experts say.

“By over-discounting or offering the promotion on too many items, Wal-Mart may end up losing profit margins on both online and in-store purchases,” says Nick McLean, CEO of e-commerce technology provider OrderDynamics.

Dennis says the discount strategy is likely to have the desired effect of increasing foot traffic in stores, but Wal-Mart should have targeted the offering at smaller segments rather than rolling it out to include a broad range of products.

“The downside is push back on different pricing across channels,” he says, meaning shoppers could be put off by an inconsistent pricing strategy. “A smart way for many retailers to test this would be to target certain customers as a promotional offer.”

But one thing is for sure: Other retail chains will keep a close eye on how shoppers respond to Wal-Mart’s Pickup Discount.

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“If they have any degree of success I’d expect many retailers to follow suit,” Dennis says.

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