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3 Things Walmart+ Can Do to Chip Away at Amazon Prime

By James Brumley - Updated Mar 5, 2020 at 8:07AM

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The final product is hardly etched in stone, but the industry and circumstances have made a few things about membership-based services clear.

In late February, ReCode reported Walmart (WMT 0.08%) would soon be launching a subscription-based service called Walmart+, offering everything from same-day grocery delivery from select stores to text message ordering to -- eventually -- discounted drugs and gasoline. Even more perks will likely become available in the future.

Walmart has neither confirmed nor denied ReCode's description of what Walmart+ is going to include. But given the evolution of what's currently called Delivery Unlimited, Walmart+ appears to be the next natural step in its growth.

There's also little doubt the world's biggest retailer needs to do something to at least slow down Amazon (AMZN 3.58%). Not only has Prime helped Amazon win control of 44% of the U.S. e-commerce market, according to Bank of America, it's on pace to displace Walmart as the country's biggest overall retailer. Consumer research firm Packaged Facts suggested in October that Amazon's total domestic sales figure would surpass Walmart's annual revenue by 2022 if the brick-and-mortar giant doesn't do something to prevent it from happening.

If Walmart+ is going to be the vehicle that finally tamps down the growth that rival Amazon Prime is enjoying, however, then three specific things have to happen.

1. Feature the advantage of physical stores

It's always been Walmart's edge over Amazon: more than 5,000 locations, putting a store within 10 miles of 90% of U.S. consumers, making it fast and easy to grab everything from light bulbs to pet food and tube socks in a matter of minutes. About 1,600 of those Walmart stores presently offer same-day delivery of groceries, but the company can expand that service as demand grows.

Man chiseling into a large stone.

Image source: Getty Images.

If the company really wants to make an appeal to consumers, it's going to want to highlight that detail as a key differentiator. Amazon can quickly deliver dry goods to Prime members, but it can only deliver perishables like milk, produce, and eggs in about fifteen cities.

Granted, those cities are among the United States' biggest markets, but Walmart stores are also found in those same markets, and more.

2. Use the data

Amazon collects a massive amount of data about its customers. The company seems to do something constructive with all of it, perhaps in ways most of us don't even realize. For instance, Amazon also operates an online advertising venture that leverages information like a shopper's purchase history, which television shows and movies that consumer may view via Amazon Prime, and so on.

Such information is also guiding Amazon's decisions about where it establishes or expands a physical footprint. Consumer analysis firm Bricks Meets Clicks says the company has limited its Amazon Go stores to markets where Amazon knows it already has plenty of e-commerce customers who are likely to shop at its brick-and-mortar locations.

Yet another example of how Amazon uses customer information: It keeps tabs on the product searches its customers generate on to come up with its own private-label offerings.

Walmart isn't nearly as deep into that learning curve as Amazon is, but if it's going to compete with the king of e-commerce, it's going to have to quickly learn to leverage every potential advantage it can. That means doing something with the purchase data its customers are willing to provide.

3. Offer price breaks on select merchandise

Walmart already operates a club-based shopping venue called Sam's Club, which looks more like Costco and less like the typical Walmart store. Sam's Club customers must pay an annual fee to shop at the warehouse network. The company doesn't need to make its more conventional stores work the same way.

Yet there's a great deal of potential in offering lower club-like price breaks on certain items at Walmart stores, if only to prompt nonmembers into paying the annual fee as a means of saving money. Once that fee is paid, it's more likely that customers will choose to do more shopping with Walmart. Just ask Amazon -- members of its Prime service spend about twice as much with the company than non-Prime users do.

That's not to suggest every in-store item must be cheaper for Walmart+ members, nor should the retailer rub nonmembers' faces in the fact that they're not getting the best possible price on what they're buying. If grocery delivery service is going to ultimately pay for itself, however, Walmart+ needs to scale up membership to something on the order of tens of millions of people at a price point somewhere near Amazon Prime's annual cost of $119 per year. A few in-store price breaks could do the trick.

A slow burn

Investors shouldn't hold their breath waiting for answers as to the impact Walmart+ may have on the retailer's results. Walmart has yet to even put the new platform into beta testing, and it seems as if it's going to add options and tinker with pricing for some time.

Still, shareholders have to like the prospect. There's little downside to building a service that might keep Amazon in check, and if it goes well, it can only mean Walmart steals back a little of the thunder Amazon has stolen from Walmart over the past several years.

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