Walmart (NYSE:WMT) has a certifiable hit on its hands. Just five months after its launch, the retailer's Walmart+ loyalty program already has as many as 8.2 million members.
Although it's not yet at the scale of Amazon (NASDAQ:AMZN) Prime, which had 142 million U.S. members at the end of 2020, Walmart's platform gives it new leverage in challenging its online rival, especially in the escalating grocery wars.
A prime opportunity
Walmart+ launched last September with the goal of providing Walmart.com shoppers access to unlimited free delivery, discounts on fuel purchases, and scan-and-go mobile phone technology for in-store shopping trips. Membership costs $98 a year or $12.95 per month.
It's very similar to Amazon Prime, though slightly cheaper (Prime costs $119 per year, or $12.99 a month). Prime members spend on average about $1,400 annually, more than double the $600 non-Prime members spend.
If Walmart can extract that kind of value from its membership program, it has an opportunity to develop into a serious e-commerce rival to Amazon, especially by capitalizing on the volume of grocery shopping its customers already do on its website.
A rich resource to tap
According to data from Consumer Intelligence Research Partners (CIRP), about 26% of customers who ordered groceries on the e-commerce site are Walmart+ members, or double the percentage of overall Walmart.com shoppers who are members.
Moreover, the survey found Walmart's grocery customers are ideal candidates for a Walmart+ membership, because they spend on average about $1,900 per year on Walmart.com, some 90% higher than what the average shopper spent on the site in a year.
It suggests the Walmart+ consumer could become an even more valuable asset to the retailer in comparison to the typical Amazon customer. While the latter makes up for that in volume, as Walmart+ grows, it can ramp up both value and profitability.
One step at a time
Walmart CEO Doug McMillon told analysts on the fourth-quarter earnings call in February, "Over time, more and more of our customers will want Walmart+ because it makes life better."
Yet even while committing to adding more benefits and services to continue attracting consumers, McMillon also wants to take a go-slow approach with the service to maintain the customer experience: "We don't want to get ahead of ourselves and go sell too many Walmart+ memberships and have a customer experience that is less than our expectation or their expectation. [...] The number of memberships will work out, but let's focus on quality as we start to scale it."
The launch comes at a good time. Walmart profited from being declared an essential business during the pandemic, while many its specialty retail competitors temporarily closed, driving some of them into bankruptcy.
Online sales skyrocketed during that time, particularly for groceries, which doubled at the onset, though they have slowed since then. If Walmart can lure more shoppers to its website by encouraging them to sign up for a Walmart+ membership, it can maintain those high growth rates.
Ready for the next phase
Amazon has created a vibrant membership program that consumers love. Last year, CIRP found almost two-thirds of those who sign up for a Prime free trial convert to a paid subscription, and 93% continue to pay for the program after one year. If they stay with Prime for two years, then it's almost guaranteed they're not leaving, as 98% remain members after that time.
And Amazon has flexibility in being able to raise the price of membership: 54% of members said they would keep Prime even if the cost went as high as $139 per year.
There's still a long distance to travel before Walmart comes within shouting distance of Amazon, but it's clear the big-box chain is off to a fast and promising start. Walmart+ is another threat that Amazon needs to be mindful of in the ongoing struggle for e-commerce market share.
So while Walmart might never reach the heights Amazon has as an all-around e-commerce destination, the retail king can do enough to keep growing for years to come.