By Rebecca Borison / www.supplychain247.com / May 13th, 2015
Walmart confirmed on Wednesday that it plans to test a new unlimited shipping service for $50 a year in a move that could rival Amazon's Prime subscription service, which costs $99 a year.
The Amazon-Walmart rivalry is about to enter its next logical phase.
Amazon has been the leader when it comes to online delivery thanks its Prime program, but it seems as though Wal-Mart is attempting to catch up.
Wal-Mart is getting ready to release a fast-shipping subscription service similar to that of Amazon Prime, according to The Information. Though Amazon has had a clear head-start, could Wal-Mart theoretically join the ring, albeit slightly late in the game?
Wal-Mart has been working on a Prime-like program for a while now, sources told The Information, but due to technical difficulties, the launch was delayed from its planned date before last year’s holidays and is expected to take place in the next few weeks or early summer.
A Wal-Mart spokesman told the Associated Press the service will cost $50 a year, less than the $99-a-year Prime costs. In the beginning, it won’t include perks like video and music streaming, as opposed to the Instant Video and music service that comes along with a Prime subscription. Wal-Mart already offers same-day delivery of groceries in five cities, but it will have to make significant investments to reach Amazon’s speed of delivery.
In 2014, Amazon disclosed it paid “billions of dollars for Prime shipping and invested $1.3 billion in Prime Instant Video.”
For a while now, Wal-Mart has had some significant technological difficulties and been mocked for its stumbling approach to e-commerce. But Wal-Mart is trying to do better. In February, on the fourth-quarter earnings call, all of the executives on the call acknowledged that they have a lot of room for improvement in e-commerce.
“We recognize the significant opportunity we have to grow this area of our business, as customers continue to reshape their shopping behaviors,” said Greg Foran, president and CEO of Walmart U.S.
Neil Ashe, president and CEO of Global eCommerce at Wal-Mart, said that the company plans to invest in four areas: “our global technology platform, our next generation fulfillment network, our talent, and on integrating digital and physical.”
Whereas Amazon is online native and thus realized the importance of delivery and logistics early on, Wal-Mart has always been a brick-and-mortar store first and e-commerce site second. This means that the company is behind and likely has a ways to go.
“I do not believe Walmart operates at Internet speeds, so it takes a large organization to gather momentum to launch new services,” Needham & Co analyst Kerry Rice said.
However, Amazon is clearly having success with Prime and perhaps Wal-Mart has realized it’s time to play the game as well.
Consumers are caring more and more about speedy delivery when ordering online, and if Wal-Mart doesn’t cater to these demands, it stands to continue losing out on sales. Amazon does not share numbers for Prime, but ITG analyst Steve Weinstein estimates that there are about 35 million Prime members in the U.S. He also estimates that Prime members spend $1,000 more a year on average compared to non-Prime members.
On top of that, the conversion rate of Prime members on Amazon.com is nearly five times as high as non-Prime members, according to Millward Brown. Millward Brown also found that Prime members are less likely to shop on other retailers’ sites once they’ve visited Amazon. Prime is hooking in consumers in a way that should have Wal-Mart and other retailers worried.
Perhaps the hope now is better late than never.
“As the largest retailer in the world, I do not think it’s too late, but I do not see it as a competitive threat unless it’s substantially cheaper,” Rice said.
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