Market Overview

Walmart+ A Different Animal From Amazon

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Walmart Inc.'s (NYSE: WMT) planned Walmart+ service, which reportedly launches later this month with a $98 annual fee for same-day deliveries of groceries and general merchandise as well as fuel discounts, may not rain on Amazon.com Inc.'s (NASDAQ: AMZN) parade. And that may not matter.

The subscription-based initiative, first reported earlier this month by the online publication Recode, would expand a pure e-grocery delivery initiative that Walmart launched late last year. The new service will offer similar benefits to Amazon Prime, Amazon's wildly successful online offering, though at a lower price. Amazon Prime costs $119 a year for unlimited one- and two-day shipping, and offers same-day deliveries for an additional fee. Prime has 150 million worldwide members, while Amazon offers 10 times more merchandise than Walmart.com. The Amazon Prime package also includes movies, music, and other benefits, making it what is known in retail as a "category killer."

Brittain Ladd, an e-commerce consultant, called the new Walmart program a "defensive move against Amazon." Walmart generates 55% of its revenue from groceries and needs to defend its online share against Amazon and rivals like Target Corp. (NYSE: TGT), Kroger Co., (NYSE: KR) and Costco Wholesale Corp., (NASDAQ: COST) while trying to add customers, Ladd said.

The Prime membership is "incredibly sticky," Ladd said, and members won't "jump ship" or pay for another annual membership. Asked if the new program would pose a competitive threat to Amazon, Ladd replied, "not even close."

Walmart has an ace-in-the-hole, however, and that is its vast store network. It operates about 4,800 stores, more than 3,500 of them supercenters. Amazon, by contrast, operates no physical stores along the lines of Walmart. Amazon has 576 facilities of varying types across the U.S., according to recent data from MWPVL International, a consultancy. The relative lack of physical density forces Amazon to operate in a different manner than traditional big-box retailers. Yet it remains the dominant player in e-commerce, with about a 50% share of the market.

Marc Lore, Walmart's e-commerce chief, said in a 2019 interview with Business Insider that the stores handle orders for same-day delivery while its fulfillment centers make one-day deliveries. Walmart has not publicly confirmed the launch of the Walmart+ service. It declined to comment Monday or make Lore available for an interview.

Writing recently on online financial site The Motley Fool, contributor Jeremy Bowman said Walmart+ may be the company's "most important step yet" to improve its e-commerce capabilities and make online commerce a sustainable growth engine. 

Since 2017, Walmart's U.S. e-commerce sales have grown by about 40% annually; sales increased by 74% in its fiscal first quarter, which ended May 1. That time period included the most severe of the government-ordered lockdowns to stop the spread of the novel coronavirus.

If nothing else, the Walmart initiative will "bring some much-needed competition to the market," said Glenn Gooding, president of iDrive Logistics, a consultancy.

In his post, Bowman wrote that 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." In so doing, it should boost consumers' spending with the retailer, he said.

Until recent years, traditional retailers have not thought of their stores as competitive weapons against pure e-tailers like Amazon. Walmart, for example, chose to view its stores as separate, and very profitable, entities. It wasn't until e-commerce began gobbling up more of total retail sales, and Amazon had left Walmart's initial paltry e-commerce offerings in the dust, that the Bentonville, Arkansas-based behemoth began to reconsider the role of its physical network in the e-commerce mosaic.

Store networks are an integral part of what Jim Tompkins, founder, and chairman of global supply chain consultancy Tompkins International and arguably the most influential industry guru of the past 50 years, called "unichannel fulfillment." The term describes a unified channel in which neither e-customers nor in-store customers exist, and which focuses on integrated and seamless customer experience without any channel differentiation, according to Tompkins. A robust store network gives retailers the optionality to fulfill from anywhere, thus delivering the right product, from the right place, and at the right price, Tompkins believes.

The preceding article is from one of our external contributors. It does not represent the opinion of Benzinga and has not been edited.

 

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