Here’s How Walmart Plans To Take On Amazon Prime
Reports suggest that WalMart‘s (NYSE:WMT) is testing a two-day shipping subscription service and building a regional delivery network to take on e-commerce giant Amazon. Two day delivery will be an improvement to its existing ‘Shipping Pass’ program which currently offers three day shipping at a subscription of $49 per year, by providing faster delivery at the same cost. While Amazon is expanding its same day delivery option to several cities, it appears that Walmart is looking to shorten delivery times to compete with the e-commerce player. With cheap prices no longer being enough of a factor to attract consumers, faster and more convenient delivery options are the new battlefield for e commerce retailers. With this new delivery timeline, Walmart’s should be able to compete better with other e-commerce players, in particular Amazon.
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Investment In Technology and Logistics To Boost E-Commerce
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Based on its current plan, Walmart will have eight additional massive warehouses around the U.S. by the end of this year. The company plans to shift more inventory to these warehouses to provide quicker delivery of its online sales. Walmart is making a $ 2 billion investment in additional technology and logistics capability to increase its e-commerce sales. The company is also building its own transportation fleet and logistical know how, in addition to tapping regional carriers to execute quick deliveries. Owning a part of the delivery network should reduce delivery costs, which are usually a large of portion of e-commerce operations. The company’s subscription based delivery program, Shipping Pass, is currently in pilot phase. Customers registered under this program will get free delivery of over 1 million products available on Walmart’s website. The company’s strategy appears to be to create loyal customers through this subscription program who will then drive revenues, similar to Amazon’s Prime membership. While Amazon’s Prime subscription costs $99 a year, it includes other services such as free streaming of movies and TV shows. In contrast, Walmart’s Shipping Pass costs just $49 per year.
As e-commerce becomes an important part of Walmart’s business, consumer convenience initiatives are critical for generating growth and competing effectively with players such as Amazon. While Amazon is testing several faster delivery options (including drone deliveries), Walmart’s investment in logistics to reduce delivery times is strategically correct. Allocating capital to e-commerce initiatives such as technology and logistical solutions, rather than additional stores, should prove to be the right strategy for the company. While Shipping Pass is still in pilot mode, its subscriber growth will be a key driver for Walmart’s revenues in future.
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