• Business Insider

How Walmart and Target can top Amazon on drone delivery

Among big retailers, Amazon has pushed the potential of drone delivery the hardest. But, according to BI Intelligence’s exclusive analysis of data from The Weather Company, the e-commerce giant isn’t the best positioned to take advantage of drones’ promise. Instead, its brick-and-mortar rivals, Walmart and Target, may be poised to reap the biggest gains.

That’s important because drone delivery is a key part of Amazon’s strategy to extend its massive lead in e-commerce. Fast and free shipping are the top services that attract US consumers to shop online more frequently, and drones could help Amazon slash delivery costs to less than $1 a package by eliminating fuel and labor costs, according to a 2015 analysis by ARK Investment Management. It could also bring same-day (or faster) delivery to more customers.

Walmart and Target are nowhere near Amazon when it comes to e-commerce. In fact, while both have posted respectable growth, there’s little indication they are gaining ground:

  • Amazon's total online sales last year topped $96 billion.

  • Target reported $3.1 billion in online sales last year, only about 4% of its overall sales.

  • Walmart doesn’t report total online sales anymore, but they totaled $13.7 billion in 2015, accounting for just 3% of revenue, according to Internet Retailer estimates.

This has translated to sluggish overall growth for both retailers. Walmart’s total revenue grew just 0.8% during its last fiscal year ending January 2017, and Target’s grew 0.9% from 2015 to 2016. Meanwhile, Amazon’s retail revenue increased nearly 25% last year.

Anything that could help widen (or shrink) that gap has huge potential ramifications for retail. Fortunately for Walmart and Target, the key to cashing in on the disruptive potential of drones and checking Amazon’s advantage in cutting-edge technology is something they have: lots and lots of stores.

These legacy retailers’ extensive networks of stores put them in a better position than Amazon to go all in on drone delivery, according to data from The Weather Company that covers more than 3 million Walmart and Target visitors.

That’s because a drone’s effective range is pretty small. And a big share of Walmart and Target customers live close to one of their stores — especially compared to the percentage of Americans who live within such range of Amazon’s fulfillment centers. That’s crucial to drone delivery’s prospects for success.

  • About 49% of Weather Company app users who visited a US Walmart location during Q1 2017 live within six miles of a Walmart store, a deliverable range for a drone. And 15.1% of purchases at Walmart are under $10, according to Perfect Price. Most of these purchases are likely light enough to deliver by drone.

  • Meanwhile, 47% of Weather Company app