Walmart will be releasing its earnings report on Tuesday, and analysts are expecting hear a lot about the role of e-commerce in the current quarter, as well as an important factor in the company’s growth strategy.
One of things it’s planning to do is to take on Amazon Prime.
Walmart last week confirmed that it will roll out its own subscription shipping service, reportedly code-named “Tahoe,” this summer.
The project reportedly has been delayed several times because of software problems and, it’s been hinted, executive leadership issues.
Walmart apparently has spent years overhauling its e-commerce software.
Although the company hasn’t revealed all of the details, it’s rumored that the service will offer unlimited three-day shipping on more than 1 million items for US$50 a year.
“We will have a closed beta this summer by invitation to test an unlimited shopping program that is predictable and affordable,” Walmart spokesperson Ravi Jariwala told the E-Commerce Times.”Customer feedback will direct how the program evolves.”
Apples and Oranges?
The idea of Walmart attempting to challenge well-entrenched Amazon has raised a few eyebrows.
“Can you really compare the two?” asked Nikki Baird, managing partner of RSR Research.
An Amazon Prime membership offers two-day shipping for millions of products and also access to streaming videos, music and millions of e-books among other things.
“This is why Prime has been such a challenge for retailers to compete against, because it is so much more than a shipping membership,” Baird told the E-Commerce Times.
On the plus side, Walmart “has more scale than most retailers, and three-day shipping is like lightspeed compared to the weeks it usually takes to get anything from them,” Baird remarked. Also, it “has done more than most retailers on the digital front, selling music and videos at least. That might be an area where they can grow their membership offering in the future.”
In Everyone’s Gun Sights
Amazon long has been the nemesis of retail chains from which it has taken business.
Walmart, Target, Best Buy, Macy’s and Home Depot are among those that have turned many of their stores into distribution centers that can fill online orders quickly, and all are beefing up their online operations.
Macy’s reportedly has about 650 stores that do double duty as distribution hubs, and it offers same-day delivery through FedEx and UPS in “select” markets.
Home Depot offers is building three 1-million-square-foot direct fulfillment centers, in Georgia, the Midwest, and on the West Coast. They’re expected to be completed this year, and it reportedly will then offer two-day delivery.
Walmart has been exploring ways of targeting Amazon for some time. One of its wackier ideas was to have store customers deliver packages to online buyers in exchange for a discount on their own purchases.
It’s unknown whether that idea is still under consideration, but a number of legal, privacy and regulatory hurdles would have to be cleared before it could be implemented.
Why Amazon Leads the Pack
The competition has a long way to go. Amazon Prime currently offers one- or two-hour delivery in certain locations on tens of thousands of items.
It also has obtained a Federal Aviation Administration experimental permit to test drone delivery — though the approval applied only to equipment the company was no longer using.
However, two senators have proposed temporary commercial drone rules that might accelerate Amazon’s efforts in this area.
Might Walmart Succeed?
Amazon may be losing money on Prime shoppers because of shipping costs, Baird suggested. “It seems to be … well more than the $99 they collect each year.”
However, Amazon doesn’t disclose many details about Prime, so that isn’t certain.
In any event, “there has to be some point where Amazon either has to get really efficient at shipping, or raise the price to cover the costs or end the practice,” Baird said.
“Walmart seems to be betting that they can find some kind of efficiency in there,” she noted. “Certainly, when it comes to supply chain efficiency, my bet goes to Walmart over Amazon.”
In the meantime, though, the $50 shipping subscription will serve as bait to attract consumers, said Baird, and “once consumers are hooked, they will likely concentrate their spending to save even more money.”
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