Walmart (NYSE:WMT) stepped up its battle for digital customers when it spent $3.3 billion buying Jet.com in October 2016 and made its CEO, Marc Lore, head of all of its digital operations. Lore nearly immediately took the fight to Amazon (NASDAQ:AMZN) by dropping its paid two-day delivery program and replacing it with a free offer for qualifying orders over $35.
It was a major step to compete with Amazon's paid membership Prime service, which includes free two-day delivery but also a limited one. The Walmart program included roughly 1 million items while Amazon's had over 50 million. Those numbers have grown to "millions" for Walmart and 100 million for Amazon.
Now, with the holiday season approaching, Walmart has stepped up its game. It's extending its free shipping offer to includes not just items on its shelves or in its warehouses, but also to "millions" of items from its marketplace partners, according to a press release. The retailer will also be "launching the ability to facilitate returns of these items" in stores beginning in November.
Why does this matter?
Amazon has a huge edge in the number of items that it offers free two-day shipping for Prime members and non-members who meet minimum order sizes. Walmart has focused on offering the items customers order most, but if you assume Amazon has a lead by almost 100 million that's a big advantage even if Walmart's selection is well chosen.
Adding marketplace items bolsters Walmart's digital selection heading into the holidays. Taking (or facilitating to be exact) returns of those items should also help by making the brick-and-mortar giant's customers more confident in making purchases from a third-party seller.
What's the risk?
Amazon has spent years perfecting its ability to ship items from third-party sellers from its own warehouses and finding partners capable of meeting that standard on their own. Walmart is new to this game and it's placing its credibility in the hands of partners who may falter.
"In the words of Yoda -- "Do or do not. There is no 'try'." Walmart must do free two-day shipping to remain competitive," Integrated Marketing Solutions President Chris Petersen commented on RetailWire. "However, there are inherent dangers in working with third parties during the peak selling season of the year. There is no respect from customers for "trying." Walmart must get this right or there will be long-term repercussions post-holiday season."
That's an accurate read on the situation. Walmart had to do something -- or it risked a less-successful holiday season -- but it's putting an awful lot of faith in partners who won't bear the brunt of the blame should things go poorly.
"The proof is in the shipping -- and returns," Black Monk Consulting founder and CEO Ryan Mathews wrote on the same RetailWire page. "Walmart is now risking its brand by indemnifying a host of third-party sellers."
A calculated risk
Under Lore, Walmart's digital operation has used a bit of a leap before you look philosophy. He has made the needed moves (like offering free two-day shipping) and sort of pieced together the logistics as things developed.
It's likely that the retailer's management team understands that this won't be an overly smooth rollout, but is willing to risk it. That may be because even thousands of delayed orders are just a tiny blip compared to overall sales, or it simply may feel that not doing this risks more than doing it.
There's a bad publicity risk here -- a big group of families not getting its Christmas presents on time could be PR nightmare -- but isolated slow shipping or lost orders happens even to Amazon. If Walmart can minimize mistakes and handle problems aggressively and generously, it's likely going to be able to make this work.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Daniel B. Kline has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Amazon. The Motley Fool has a disclosure policy.