Walmart on Thursday began testing a two-day unlimited shipping service priced at US$49 a year.
Subscribers will get more than a million items, including the most commonly purchased items on Walmart.com, delivered to their door in two days or fewer, Walmart spokesperson Bao Nguyen said.
“Customers will continue to enjoy their two favorite features — no minimum order requirements and free returns online and in stores,” he told the E-Commerce Times.
The service, called “ShippingPass,” launched last year as a three-day shipping pilot program with a $50 annual subscription fee.
Interested consumers can join thewaiting list.
Consumer reaction to the three-day ShippingPass pilot likely was not been favorable “because Amazon has already trained consumers to expect to receive many goods in two days or less,” said Larry Chiagouris, professor of marketing atPace University.
Walmart already offers free value shipping on orders of $50 or more. “We will continue to offer free shipping on orders of $50 or more,” Bao said.
There is no minimum order or minimum distance requirement for ShippingPass.
Taking on Amazon
Amazon, Walmart’s prime target, has warehouses and drop centers throughout the United States and can leverage economies of scale because it’s so large, getting better prices for shipping and products.
However, “it’s not just about scale; it’s about efficiency,” said Nikki Baird, managing partner atRSR Research.
“That’s one place where Walmart has the advantage,” she told the E-Commerce Times. Amazon “has a much more difficult inventory optimization than Walmart, because Walmart can always tap into store inventory and can always balance inventory choices against both online and walk-in demand.”
The problem comes down to splits, Baird said. Amazon often ships orders as split line items, even those that are add-on only, and “as soon as you have to ship from multiple locations, it doesn’t matter how much you can negotiate the shipping fee. … It’s two boxes and two sets of hands on those boxes.”
Weighing the Advantages
Amazon is well ahead of Walmart in drone delivery, having tested drones in the UK, Canada and the Netherlands and having just acquired a team of top European computer vision experts.
In contrast, Walmart applied in October to test drones for home delivery and pickup.
“We can offer faster and more affordable shipping because we have a unique fulfillment network that includes new large-scale fulfillment centers, stores, distribution centers and our transportation network,” attested Walmart’s Nguyen.
“Logistics is the weapon that will decide who wins and who loses,” Pace’s Chiagouris told the E-Commerce Times. “Walmart is quite sophisticated in using logistics to its advantage.”
If Walmart can use “its legendary supply chain efficiency to do something [like Amazon Prime] but actually make money at it, then, yeah, I think they can take on Amazon,” Baird surmised.
On the other hand, “saying you want to deliver to the home is one thing; executing it is another,” Guy Courtin, VP and principal analyst at Constellation Research.
“Amazon has been constantly building the necessary infrastructure — distribution centers, logistics and IT systems — to handle this,” he told the E-Commerce Times.
Walmart can differentiate itself from Amazon because it “offers some goods that are not offered by Amazon, including many perishable food products, and needs to leverage these to its advantage,” Chiagouris suggested.
Further, it can offer customers the option of returning products to the store, which Amazon can’t, Baird said.
Subscribers to ShippingPass can cancel at any time. That, along with its lack of minimum order requirements and shipping distance, raises the question of whether the program will be profitable.
“Walmart is betting that many consumers will see this as a catalyst to buy more merchandise, so it will make up the revenue on increases sales to existing customers and possibly” new ones, Chiagouris suggested.
“We’re able to offer free two-day shipping for $49 as a result of enhancements we’ve continued to make to our e-commerce fulfillment network,” Bao said.
It’s not clear whether Amazon makes money off its Prime members, Baird noted. “I’m guessing Walmart did the math to figure out how to offset” shipping costs.