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Industry Perspective: Walmart’s Free Shipping Subscription Move

May 15, 2015         By: Kevin Xu

Walmart has recently announced a new Amazon Prime-like subscription service for fast and free shipping. We get Clarus Marketing Group’s CEO Tom Caporaso’s thoughts on this move and how it may play out.

 

Kevin Xu: Will Walmart’s new service take off?

Tom Caporaso: It’s too soon to tell.  One reason why Walmart is testing it (by invitation only in select markets) instead of rolling it out nationwide is probably because there are some questions that need to be resolved.

  • The relatively-low $50 annual fee will likely appeal to Walmart’s price-conscious customers, but will it cover Walmart’s delivery costs? Amazon admits that its $99 Prime fee doesn’t cover the cost of an average member’s two-day shipping charges.
  • Walmart already offers free shipping on orders of $50 or more. Will long-time customers want to pay more for faster delivery?
  • Faster delivery also applies only to a million or so of the 7 million items available online.  Will the program provide a smooth, satisfying shopping experience for subscribers trying to bundle eligible and non-eligible items?

Walmart has seen impressive e-commerce growth recently, partly because of its greater investment in online retail but partly also because it had a fair amount of room to grow.  The service can enhance Walmart’s performance in that channel, but Walmart has to get it right.  The testing process will help (as will Walmart’s considerable resources, of course).

 

Amazon Prime also bundles digital goods and freebies along with its free shipping.  Does Walmart’s lack of this hinder it in any way?

Walmart’s singular focus on faster free shipping will probably limit its ability to peel off long-time, satisfied Prime subscribers, and it won’t help Walmart appeal to Millennials who might be more attuned to cultural and entertainment interests than cost concerns. Those aren’t necessarily the types of shoppers Walmart is targeting, though.

Beyond that, Walmart and Amazon are very different companies, and the two programs reflect that.

Walmart focuses primarily on profitability and achieves it by driving and promoting everyday low prices. The aim of its program is to attract thrifty online shoppers by delivering low-priced goods as quickly and affordably as possible.

Amazon right now is more concerned with generating cash flow than profits, and it seeks to do so by being as many different things to as many different people as it can be; hence the diverse and growing suite of Prime benefits (and other Amazon offerings).

If the results of Walmart’s testing suggest it needs to take a more expansive approach, there’s no reason why it can’t.