Good piece in the Wall Street Journal addressing how Walmart is deploying price competition to hold and grow its share of the grocery market.  One excerpt:

The world's biggest retailer is investing heavily to lower prices in its U.S. stores, the company's executives say, as competition heats up against Amazon.com and European deep discounters Aldi and Lidl.  Walmart is spending to beat competitor's prices and test strategic price drops, mostly on food and household goods sold at Walmart stores in the Southeast and the Midwest...

The story suggests that the intensity of grocery competition is a major element in the price deflation experienced for food-at-home.  In 2016 prices fell by 1.3 percent, according to the Labor Department.

In interviews with Recode (above), Reuters and others, Marc Lore the head of Walmart's ecommerce operation has announced the company will further discount prices for products purchased online and picked up at a store.  According to Reuters:

Online orders picked up in store already qualify for no shipping charges since the retailer saves on shipping fees. The latest discounts come on top of that. For example, a Vizio 70-inch 4K Ultra HD television priced at $1,698 for store pick up will qualify for an additional discount of $50... Lore said Wal-Mart is able to offer these discounts as it is able to eliminate delivery costs by leveraging its fleet of more than 6,700 trucks to deliver products from warehouses to stores.

According to the Washington Post:

Pickup not only allows retailers to save on shipping costs, but by bringing the shopper into the store, it provides a chance to entice them to spend more money. Kohl’s, for example, said last year that for every $100 a customer spends on store pickup, they buy, on average, $25 worth of additional goods when they come to retrieve the order.

This is a discount that reflects a real supply chain cost-savings for Walmart.  It is also a cost savings that Walmart's physical network allows, not available to Amazon or other purely online and less omnipresent retailers.

The pickup discount does not help Walmart with time-sensitive, affluent urban consumers that Amazon Prime has been so effective capturing.

Jana Partners, an activist investor, has accumulated a nine-percent stake in Whole Foods. It is pushing for major reforms, including -- it is reported -- significantly increasing in-house procurement and distribution.

Currently Whole Foods self-manages much of its coffee, bakery, seafood, and other perishables, while contracting with United Natural Foods for dry goods and frozen. According to several media reports, Jana is focused on reducing the grocery retailer's dependence on its wholesaler/distributor.

Suggests to me that Jana doesn't know much about grocery. Whole Foods operates fewer than 500 stores. That's really not much market leverage. The cost -- financial and strategic -- of establishing the procurement and distribution capacity would be significant... and that this would actually create any comparative advantage seems very unlikely... more likely producing disadvantages.

For more see: New York Times, Reuters, and CNBC.

Much more interesting -- at least to me -- are rumors that Amazon has been looking to purchase Whole Foods.  There's a play worth trying to work out on the chalk-board.

Good overview of retail trends from Bloomberg.  One extract:

There could be 8,640 store closings in 2017.... That would be higher than the 2008 peak of about 6,200. 

Retail defaults are contributing to the trend. Payless is closing 400 stores as part of a bankruptcy plan announced on Tuesday. The mammoth chain had roughly 4,000 locations and 22,000 employees -- more than it needs to handle sluggish demand. 

HHGregg Inc., Gordmans Stores Inc. and Gander Mountain Co. all entered bankruptcy this year. RadioShack, meanwhile, filed for Chapter 11 for the second time in two years.

Other companies are plowing ahead with store closures outside of bankruptcy court. Sears Holdings Corp., Macy’s Inc. and J.C. Penney Co. are shutting hundreds of locations combined, reeling from an especially punishing slump in the department-store industry.

Meanwhile, Dollar General reported a 14 percent sales increase and plans to open 1000 new stores.  Business Insider headlined the news as, "Dollar General is Defying the Retail Apocalypse."

The Material Handling Institute has released Version 2.0 of their Material Handling and Logistics Roadmap.  The document considers what the supply chain might look like in 2030. This builds on the very well-received first version released in 2014.

Here are a few factoids the authors listed under "What's Changed Lately":
.
•   Manufacturing output has returned to prerecession levels with 1.5 million fewer workers.

•   Artificial intelligence is starting to reshape work in the supply chain.

•   Blockchain is no longer just for BitCoin or fintech. Walmart is testing it in the supply chain to add structure to its processes.

•   In the fall of 2016, fast-fashion leader Zara went from a winter coat concept to delivering it to stores in just 25 days. Eleven of those days were spent manufacturing 18,000 coats.

•   There is a shift among retailers from inventory stock to inventory flow. The shift to flow is possible because of interconnectedness, bandwidth and technology.

•   Warehouses are much more sophisticated and likely in the not too distant future to rely on robotic automation.

•   Brick-and-mortar stores are now viewed as small distribution centers to react to Amazon. At the end of 2016, Target shipped orders from 1,000 stores, up from 460 just a year earlier.

•   Amazon accounted for 28% of all e-commerce at the end of 2016.

•   In the 2016 holiday season, Amazon accounted for nearly 40% of all retail e-commerce. Its closest competitor was Best Buy at 4%. Walmart was almost 3%.

• The e-commerce retail cost structure is still challenged by free shipping. Now, returns have become a major challenge to e-commerce success.

•   The final mile is ever more complex. Even Dunkin’ Donuts feels it, launching curbside pickup for coffee.

Read more of the review -- and especially their predictions -- by downloading the full report.

I participated in MHI's Trenton Roundtable that contributed to development of the Roadmap.

The Amazon River, photo by NASA

According to Bloomberg, sometime in May Amazon will host several of the biggest providers of consumer-packaged-goods at a three-day event designed to "persuade them that it's time to start shipping products directly to online shoppers and bypass chains..." (Recode has a great piece putting the May event in broader context, including a similar Walmart summit in February.)

The invitations are being sent out even as serious questions percolate regarding the sustainability of the current direct-to-consumer distribution model. DCVelocity reports, that "free" shipping has cut deep into the margins of both retailers and distributors, so deep that some major players are announcing significant changes in their game-plans.

Memphis, Tenn.-based FedEx and its chief rival, Atlanta-based UPS Inc., have had enough. They recognize it is impossible to turn their backs on business-to-consumer (B2C) volumes given their growing relevance, and they are reconfiguring their networks to handle the business more cost-effectively. At the same time, though, the giants are signaling to retailers that they should begin accepting compensatory rates, or they should find another carrier.

And... earlier today UPS announced expanded Saturday deliveries.

The US Census Bureau estimates that in the last quarter of 2016 e-commerce accounted for 8.3 percent of overall retail sales. This is widely considered a conservative estimate. Clearly in some specific retail sectors online is at par or better with in-store sales. Writing at pymnts.com, Karen Webster notes, "Books, office supplies, apparel and sporting goods show online sales that approach 30, 40 and even 60 percent for those same categories in retail sales." Music has been so decimated, it is no longer even mentioned.

The big retail sector that has probably been most resistant to online purchasing is grocery. But both online and offline, the competition is heating up. Walmart, the number one grocer in the United States, is rapidly deploying a click-and-collect capability. (Amazon is experimenting with a similar service.) Number two, Kroger, is "testing sensor-laden interactive shelves that detect shoppers in the aisles via their smartphones to offer them personal pricing and product suggestions as they walk along." German grocers Aldi and Lidl are making a big push for US market-share.

 According to reporting by Bloomberg, Amazon intends to be among the top five US grocers by 2025.

That would require more than $30 billion in annual food and beverage spending through its sites, up from $8.7 billion — including Amazon Fresh and all other food and drink sales — in 2016, according to Cowen & Co. Reaching that milestone would require a new wave of store and warehouse investments around the country, costing billions of dollars. That’s an existential change for Amazon, which initially stayed away from perishable goods and has mostly avoided the overhead of physical stores since it started in 1994.

Notice the report's focus on supply.  Big challenge, no doubt.

But Amazon has never given priority to supply. Instead it is tightly organized around owning -- and fulfilling -- demand.  Walmart destroyed Sears (and others) with state-of-the-art supply chain management.  Inditex has driven extraordinary growth with profoundly innovative and effective supply chain management.

Not Amazon.  Whenever possible Amazon has outsourced distribution. Amazon wants to be the platform where others sell and then supply. It will distribute when it must. But Amazon wants to own the demand signal. Jeremy Hanks explains, "Amazon only focuses on directly selling and fulfilling high-demand products and leaves long-tail merchandise for its independent sellers to fulfill. In its electronic category, for example, Amazon only sells 7 percent of the products while the remaining 93 percent are sold by third-party merchants..."

Earlier today (Tuesday, April 4) BMO Capital Markets advised its clients that Amazon's stock price could see a forty percent increase in coming months, largely on the strength of its "sponsored products" advertising program.  As the Amazon website explains,

Amazon Sponsored Products is an easy way for you to advertise your listings. Ads appear right where customers will see them, such as the first page of search results or product detail pages. You place bids on relevant keywords, and if your bid wins and your ad matches the search, it gets displayed to shoppers. These targeted ads can bring your products to a new audience and help you maximize your sales.

The targeted ads can, of course, be integrated with Amazon's one-click ordering application... everyone wins.  Especially Amazon which becomes the ubiquitous intermediary

More seamless -- even seductive -- is Alexa, Amazon's personal assistance technology.  Alexa is designed for others -- outside Amazon -- to develop new "skills". Amazon technology provides the interface -- brokers the deal, we might say -- but others deliver the product.

Amazon pulls consumers toward it by understanding and shaping the consumer experience.  Once Amazon receives the consumer's pull signal -- and its cut of the transaction -- the company is just as happy to leave to others the problems of pushing the product.

I do not know much about gods; but I think that the river
Is a strong brown god... conveyor of commerce...
The problem once solved, the brown god is almost forgotten...
Unhonoured, unpropitiated
By worshipers of the machine, but waiting, watching and
     waiting...
The river is in us, the sea is all about us...

T.S. Eliot, The Dry Salvages (with apologies)