Just a few days ago I laid out three ways the upcoming Walmart+ service from Walmart (WMT -0.61%) could successfully stunt the growth of Amazon's (AMZN -0.07%) all-inclusive Prime platform. While Walmart+ is not equipped to dethrone Prime as a tool to keep consumers within a digital e-commerce ecosystem, consumers are willing to test drive new offerings. Even though consumers don't know what Walmart+ will look like a year from now, it's nothing for Amazon to simply shrug off.
Still, Walmart has to know that what Walmart+ seems to be so far will hardly make the company vastly more competitive with Amazon.com. As I see it, there are three big soft spots that could keep Walmart+ from being the threat some have suggested it could be.
1. Not the same customers
Per Kantar Retail's recent ShopperScape survey, the average Walmart shopper lives in a household that earns about $76,000 per year. The average Amazon customer, on the other hand, is part of a household earning $84,000 per year.
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The disparity superficially seems to offer an advantage to Walmart, saving time and gas money for consumers who are more likely to shop with the retailer. It's not the lower end of the middle-income scale that's interested in subscriptions or paying fees to be part of shopping clubs, however -- it's the higher end of middle-income earners. The average Costco customer lives in a household earning a little over $100,000 per year, according to Kantar Retail's data, and UBS says about 60% of Costco's customers are also Prime members. Walmart is the odd man out in this mix.
2. It can't just be delivery
The final version of Walmart+ has yet to be determined. In fact, the only detail of Walmart+ the company has confirmed is the name (and even that's subject to change). If ReCode's understanding is anywhere on target, the service will be an evolution of Walmart's existing Delivery Unlimited service, which offers same-day grocery delivery from more than 1,600 stores for an annual fee of $98.
That's not a bad bargain for a certain sort of busy customer, but it's not enough. Amazon is offering next-day delivery of dry goods all over the nation, as well as same-day delivery of perishables in select markets -- plus tons of video entertainment, plus free one-day shipping of nongrocery goods bought via Amazon.com at a price of only $119 per year.
The world's biggest brick-and-mortar retailer is expected to add perks to the platform later. ReCode indicated discounts on prescription drugs at Walmart pharmacies and discounted gasoline at Walmart's convenience stores were a possibility. Amazon Prime is the yardstick by which all other similar services will be judged, however. Since it offers a robust on-demand library of entertainment, consumers will likely want something similar from Walmart+.
Such an option doesn't appear to be of any immediate interest to Walmart, though, given last month's whispers that it was looking to sell its video-streaming business Vudu to Comcast. Vudu isn't another Netflix or akin to Amazon Prime, but rather is a means of storing movies and television series purchased outright by consumers on an a la carte basis. Vudu is the closest thing to a subscription-based streaming service Walmart has, but the company doesn't seem to want it.
3. Struggling with delivery logistics
Finally, Walmart is already struggling to make grocery deliveries when the option is available from 1,600 of its stores. Increasing the number of grocery delivery customers it serves by making the option available on a subscription basis may only exacerbate its logistics headaches.
Symptoms of this struggle surfaced -- again -- last month when contracted delivery service provider Skipcart discontinued its partnership with the company. That move was telling, as Skipcart had worked with Walmart less than a year and will stop providing the service even before the initial contract's term has expired. Skipcart was also the fourth delivery service to sever ties with Walmart in the past several months, further pointing to the difficulty of doing the job profitably.
As I suggested at the time, Walmart's only option to make deliveries a viable value-add service would be growing its own delivery network in-house rather than hiring third parties to do the work. Offering a subscription-based choice would likely create much-needed scale to make deliveries at least a breakeven proposition for the company. That could be a complicated project, however, and could take years to reach critical mass.
Bottom line
None of this is to suggest Walmart+ will be a bust and fail to make any dent in Amazon Prime's dominance. But, it does suggest that if Walmart+ is directly aimed at Amazon Prime's core user, then it's likely only going to land a glancing blow. TLGG Consulting managing director Katrin Zimmermann arguably said it best by recommending, "Instead of trying to beat Amazon at its own game, Walmart should focus on solving actual problems for its target demographic." The brick-and-mortar retailer isn't ideally suited to tackle Amazon on its own turf.
