Walmart (WMT -1.75%) is preparing to launch its latest assault on Amazon (AMZN 1.30%).
According to an article on Recode this week, the retail giant is about to unveil a new subscription service called Walmart+ that will offer similar benefits to Amazon Prime. Costing $98 a year, Walmart+ will be a significant step up from Delivery Unlimited, its existing same-day grocery delivery service. The new loyalty program is expected to feature free same-day delivery of groceries and general merchandise, discounts on fuel, early access to product deals, and other perks such as reserved delivery slots.
The move may be the most important step yet in Walmart's multiyear initiative to enhance its e-commerce capabilities, make online retail a growth engine for the company, and protect its market share from Amazon.
Since 2017, Walmart's U.S e-commerce sales have grown by about 40% annually, boosted by its recently enacted guarantee of one-day delivery without a membership and the expansion of its online grocery pickup and delivery programs. Its e-commerce sales have boomed further during the COVID-19 pandemic, rising 74% in Walmart's fiscal first quarter, which ended May 1, making this an appealing time to launch an e-commerce-focused subscription service.
Amazon Prime, with its approximately 150 million members worldwide, is going to be nearly impossible to unseat as the leader. However, Walmart does have one key advantage over Amazon, and it's leveraging it in Walmart+.
Image source: Walmart.
Brick-and-mortar makes a comeback
Walmart has more than 4,000 stores across the United States and claims to have locations within 10 miles of 90% of the U.S. population. For years, those stores were something of an albatross in Walmart's battle with Amazon, as the company refused to invest significant resources in e-commerce because it didn't want to lose in-store customer traffic, which was more profitable. In the early years, it simply didn't take the e-commerce threat seriously.
However, Walmart has come to realize that the best way to use its store base is to support its e-commerce operations with programs like online grocery pickup, which has been highly popular. Similarly, its stores are supporting its same-day delivery service, and that infrastructure is something Amazon doesn't have. Currently, Prime guarantees one-day delivery on millions of items, while shoppers can pay extra for same-day delivery of some items through Prime Now.
Last year, Walmart's e-commerce chief, Marc Lore, explained to Business Insider that its fulfillment centers ship one-day orders while stores handle orders for same-day delivery: "Most of the picking capacity in the store is being utilized for same-day pickup and same-day delivery," he said. Though Walmart hasn't addressed directly the logistics that will underlie Walmart+, stores will likely be responsible for a large share of the same-day deliveries, especially of groceries.
Can Walmart+ take on Amazon Prime?
Amazon has a number of advantages over Walmart, including a much wider selection, larger warehouse capacity, and a vast third-party marketplace, though Walmart took an important step in expanding its own marketplace via a new partnership with Shopify.
Prime's e-commerce supremacy isn't going to be threatened anytime soon, especially as Amazon continues to innovate and add new perks to the loyalty program, but Walmart can still narrow the gap, and seems poised to do so.
Plenty of customers and investors will make comparisons between Walmart+ and Amazon's signature subscription service, but there's more at stake here than just competing with Prime. Walmart needs to protect its market share in groceries and other areas, and locking customers into a Prime-like service should help boost their individual spending with the retailer. The service should be popular with those who already do some or all of their grocery shopping with Walmart.
Additionally, Walmart must also battle for customers with rivals like Costco, Kroger, and Target, all of which are stepping up their e-commerce offerings.
Walmart+ doesn't have to beat Amazon Prime to be successful. By leveraging the company's advantages in grocery and its store base, the new service can boost sales, reward customers, and lock in a loyal customer base.
Investors cheered the news of the pending service launch, sending the stock up 7% on Tuesday. We'll learn more about the program when Walmart makes a formal announcement, which could come later this month.
