As Oscar Wilde said, "Imitation is the sincerest form of flattery."
With Amazon.com (NASDAQ:AMZN) quickly creating what figures to be a powerful competitive advantage with its Prime subscription delivery service, dominant brick-and-mortar retailer Wal-Mart (NYSE:WMT) earlier this month announced a copycat service, dubbed ShippingPass.
The decision to launch ShippingPass has the potential to send ripple effects through the e-commerce space, so let's dive into this important storyline.
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After experimenting with a similar pilot shipping program last year, Wal-Mart officially announced ShippingPass earlier this month. Subscriptions to ShippingPass cost $49 annually and entitle customers to unlimited two-day shipping on all online orders from Walmart.com. For context, Amazon's Prime subscription service charges an annual fee of $99, which entitles users to unlimited two-day shipping in addition to a host of other perks like access to Amazon's budding entertainment and local delivery ecosystems.
To compete with Amazon Prime, Wal-Mart has undertaken a sizable investment in its already robust delivery infrastructure. Specifically, Wal-Mart reportedly plans to leverage eight distribution centers strategically stationed around the country. The company has stated the last of those distribution facilities is expected to begin operation this year. Wal-Mart plans to also enlist a cadre of regional delivery companies to help it ferry ShippingPass deliveries over the so-called "last mile" to consumers' actual doorsteps.
Reporting from The Wall Street Journal names regional shippers including LaserShip in the East Coast, OnTrac in the West Coast, and United Delivery Service in the Midwest as having signed fulfillment contracts with the Bentonville-based retail juggernaut. This move should also help reduce Wal-Mart's reliance on national shipping and logistics companies like UPS and FedEx, a focal point of Amazon's in recent years.
Amazon reportedly already uses each of the aforementioned regional shipping companies to help move its huge delivery volumes to their final destinations. Though it may take some time, it appears launching ShippingPass should help Wal-Mart weather the transition toward a future where e-commerce figures to account for an increasing share of overall retail sales, much to Amazon shareholders' chagrin.
Supply chain as a competitive advantage
Thanks to a number of complimentary factors like convenience and increased ease of delivery, e-commerce appears poised to continue to expand its share of global retail sales in the decades to come. And in an era of increased competition thanks to the growing hoards of companies selling online, retailers with the ability to quickly get goods to their customers seem likely to disproportionately benefit from this trend.
As you can hopefully see, arguably the two best-positioned companies in this sense are Amazon and Wal-Mart, especially for the kinds of basic goods like DVDs and bath tissue upon which both companies have based their retail empires. It remains to be seen whether specialty and high-end retailers, whose managers worry their brands could suffer from a perceived mass-market taint of Amazon and Wal-Mart, will be able to insulate themselves from the rise of this "immediate gratification" quality within e-commerce. It might not matter, though, as Amazon appears interested in actually turning its strength into yet another competitive driver.
Earlier this year, Amazon rented 25 Boeing freight airliners as part of a strategic investment in publicly traded Air Transport Services Group. This move will allow Amazon to handle as much as an estimated 15% of its own total shipping volume. As part of this news, it also came to light that Amazon has also considered actually turning its growing fulfillment capability into a service it provides for smaller e-commerce companies, much in the same way has done with third-party ads on Amazon.com and its AWS cloud computing platform.
Charging other companies to use its shipping and logistics assets could help reduce Amazon's own corporate fulfillment costs. According to Amazon's famous flywheel strategy, this could enable Amazon to lower its retail prices, which should help drive further sales growth.
Given the competitive threat this could create, Wal-Mart's interest in competing with Prime makes perfect sense, here. The shifts currently playing out within the retail space will take years to fully unfold -- such is the sheer immensity of the global retail sector. Either way, Wal-Mart's decision to challenge Amazon's efforts to dominate delivery should help further prepare the company to remain relevant as e-commerce continues to grow in the coming years.