Amazon.com (NASDAQ:AMZN) has made no secret of its aim to deliver everything a customer could want in as little time as possible. To cut delivery time, the company has gone to lengths such as testing package delivery by drone and has rapidly expanded its network of fulfillment centers in order to shorten the shipping distance to major metropolitan areas.
Now, the company nicknamed the "Everything Store" seems set to reap the rewards of that investment: It just announced free same-day delivery to Amazon Prime customers in 14 of the country's largest metro areas, including New York, Los Angeles, and San Francisco. To quality for the free same-day service, orders must be over $35 and be placed before noon.
The announcement comes as Amazon's brick-and-mortar rivals are increasingly emphasizing e-commerce in order to compete with the online juggernaut. Target (NYSE:TGT) recently said it would lower its threshold for free shipping of online orders from $50 to $25, the lowest free shipping for a major retailer.
Meanwhile, Wal-Mart (NYSE:WMT) is doubling down on e-commerce by offering a Prime-like service known as ShippingPass, which will offer shoppers free three-day shipping on millions of items for just a $50 annual membership fee. At $50, the service costs half as much each year as Amazon's Prime, but only offers three-day shipping instead of the two-day limit that is standard with Prime. ShippingPass also lacks the Amazon service's other perks, such as free video streaming and use of the Kindle Lending Library.
Wal-Mart's plan seems to target a more price-conscious shopper than Amazon's, looking for a consumer who is willing to sacrifice speedier delivery to save a few bucks. That seems like a wise move given that Wal-Mart's customers tend to have lower incomes than Amazon's, and the brick-and-mortar retailer's strength generally lies in rural areas while its rival is focusing its same-day service on cities.
Even before rolling out ShippingPass, Wal-Mart had made its ambitions in e-commerce known. This year it cut capital expenditures on new stores to increase investments in e-commerce by up to 50%; growth has been strong in that area, with a 17% increase in global online sales in the past quarter. Still, the recent announcements shed light on the size of the gap between both companies' e-commerce capabilities.
Welcome to the big leagues
ShippingPass, which has yet to be launched, is Wal-Mart's first attempt at an e-commerce loyalty program. Prime, meanwhile, has been in existence for over 10 years and now counts an estimated 40 million members worldwide. Amazon CEO Jeff Bezos and others see it as perhaps the company's most important innovation, tying together its unique products and services -- instant video, e-books, cloud storage -- under one umbrella that encourages more frequent shopping at Amazon.
The company is obsessed with relentlessly improving and innovating and will almost certainly offer more and better perks to entice shoppers, which will make it difficult for Wal-Mart to compete for the same customer. Nonetheless, ShippingPass was the right move for Wal-Mart as the e-commerce market has become too big to ignore. In addition, Wal-Mart has some hidden advantages over Amazon.
The wild card
Though Wal-Mart has struggled to increase sales recently, observers seem to forget the retailer's unrivaled size. Last year, it brought in more than five times the revenue of Amazon.com. It has thousands of Supercenters across the country and is quickly penetrating cities with its small-format Neighborhood Market stores. Essentially, its physical footprint is hard to match. The company could leverage those advantages to speed up shipping as delivery time becomes more important to consumers.
This is far from a two-horse race as well, and Amazon, as the biggest player in the space, has a number of companies gunning for it. In addition to Amazon and Wal-Mart, start-up players such as Instacart and Postmates are grabbing market share in urban on-demand delivery, and Google through its Express service has partnered with retailers such as Whole Foods, Walgreen, and Barnes & Noble to provide free same-day delivery. Google has also made no secret that it increasingly sees Amazon as its biggest rival.
Still, with its raft of benefits and reputation for outstanding customer service, Amazon Prime is the clear leader. Wal-Mart and its ilk better move quickly, or Amazon's moat will only grow wider.