Why Wal-Mart Is Investing In Shipping? JPMorgan Chase Senior Analyst Explains

Wal-Mart Stores, Inc. WMT announced recently that it is rolling out a free shipping service similar to Amazon.com, Inc. AMZN’s Amazon Prime service, but at a price of $50 per year, which is almost half of what Amazon charges.
Chris Horvers, JPMorgan Chase senior analyst, was on CNBC Thursday to weigh in on this.

Wal-Mart’s Two Realizations

“Wal-Mart I think has come to two realizations in the past couple of years,” Horvers said. “A) Amazon took an opportunity that they failed to embrace and B) it’s hard for them to acquire new customers into those stores because they already have a very high market share, let’s say 25 percent in groceries.”

He continued, “So, they have been investing. They now have 10 million available skews online, they have been investing in technology, they’ll have over 200 points of distribution into the U.S. and I think the most interesting fact is that if you look last year, the fastest growing category in terms of online growth was consumer product goods…that’s the heart of Wal-Mart and they [needed] to it to compete.”

Crushing Competition

Horvers was asked that other retailers have also tried to compete with Amazon on shipping and most of them have filed, so will Wal-Mart be able to pull it off. He replied, “If you go back to what, how Wal-Mart crushed the competition in 1990s , they crushed them on having better prices, which Amazon replicated.”

“The breadth of assortment, Wal-Mart has a 130,000 skews in the super centre. Amazon has endless skews [given] online and they did it by very précis and very efficient logistics. That’s a Wal-Mart core competency, Amazon has created that.”