Giant retailer may have missed the best time to launch Walmart Plus to compete with Amazon.com, but better late than never
By guest author Jinjoo Lee from Wall Street Journal
Walmart Inc.’s WMT shareholders were nit enthusiastic when word got out in February that it would start a subscription service akin to Amazon Prime. Times have changed.
The retailer’s 3 % selloff back then reflected the view that the world might not need Walmart Plus. The coronavirus pandemic and the resulting boom in online selling seem to have shifted the perception: After another report last week from Recode that the launch would occur later in July, Walmart’s shares surged by nearly 7% and were up a cumulative 11% by Wednesday, July 15, 2020.
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Walmart already has an unlimited delivery option for USD 98 a year, so the subscription service likely would be an enhancement of that offering. While the company itself hasn’t said anything about the service, it has a teaser website that seems to indicate it will sell a range of products, including groceries and general merchandise such as gaming consoles. The Recode report noted that Walmart Plus would include same-day delivery and early access to product deals.
Alas, the hottest window of opportunity for Walmart Plus’s launch has passed. The pandemic stock-up months of March and April were when consumers were the most desperate to find goods, even at a premium, as retailers scrambled to untangle their supply chains. Starting a service that provided at least some alternatives to Amazon.com Inc.’s out-of-stock items would have been a fantastic opportunity to poach customers.
While the coronavirus is now resurging in different parts of the country, most retailers by now have figured out ways to make sure they don’t run out of key products.
Now is not such a bad time either, though, as logistical constraints seem to continue burdening Amazon’s service, leading to cracks in customer satisfaction. Amazon’s next-day and two-day delivery promises have been broken in parts of the country; 10 days was the average number of days it took for delivery, according to a June 22 report by Scott Mushkin, an analyst with R5 Capital. He noted that surveys showed consumers turning to other retailers because of such delays.
A survey published in June by RBC Capital Markets showed record low satisfaction levels across Amazon customers, with 64 % extremely or very satisfied compared with 70 % at Walmart.
Walmart would be well-placed to compete in delivery: It has 4700 stores, putting it within 10 miles of 90 % of the U.S. population, the company said in a February presentation. That places Walmart much closer to most shoppers than Amazon’s Whole Foods, which operates roughly 500 stores. Overall, Walmart’s U.S. retail footprint as measured in square feet is over three times that of Amazon’s North American physical stores, fulfillment centers and data centers combined.
That said, taking market share from Amazon won’t be easy. Auto-renewal tends to make memberships sticky, and Amazon has offerings such as Prime Video that Walmart Plus won’t be able to match immediately. A sizable portion of Whole Foods delivery customers might not embrace Walmart as a supplier of organic produce.
But at least a subset would be willing to jump ship if Walmart’s offering was price-competitive in departments they cared about. Many websites and blogs cater to such savvy online shoppers.
It isn’t just thrifty and sophisticated online buyers that Walmart could attract: E-commerce activity in general is growing at a healthy clip, especially with many older customers shopping online for the first time. Walmart said in its latest earnings call that it had seen higher e-commerce growth rates among customers who are 50 years of age or older. Its U.S. e-commerce business grew 74% in the quarter ended April 30 compared with a year ago.
Subscription models are thriving elsewhere in retail. Costco and BJ’s Wholesale Club saw renewal rates of 91 % and 87 %, respectively, in 2019. Premium members spent more than others at both Costco and BJ’s. Paying an upfront fee for Walmart Plus instead of using the regular website could have a similar impact on how often members turn to the retailer. Many shoppers, of course, are simply eager to get the most out of their upfront fees.
Walmart already seems to have much of the infrastructure set up to launch its service. In a February presentation with analysts, Marc Lore, chief executive of U.S. e-commerce, said the retailer already had made changes to its inventory system for its delivery services, which he said was the “really expensive part.” Existing stores already serve as warehouses. Moreover, Walmart’s surge in overall sales already helped generate improved e-commerce margins in the last reported quarter. It may sacrifice that improvement temporarily to gain share for the service.
Amazon reigns over e-commerce. Walmart may not de-throne it, but it is well positioned to at least dent the Amazon crown.