Walmart isn't losing to Amazon in online retail, not even close. And its latest salvo in shipping wars is further keeping it in the game against Amazon.
Walmart isn’t losing to Amazon in online retail, not even close. And its latest salvo in shipping wars is further keeping it in the game against Amazon. Less than a month after the world’s largest online retailer announced making one-day shipping of products standard for its Prime members (as its Chief Financial Officer Brian Olsavsky said during Amazon’s first-quarter 2019 earnings call), Walmart on Tuesday announced next-day delivery service, beginning with customers of Walmart.com. without a membership fee.
Walmart had teased the 24-hour delivery service a day after Amazon announced one-day shipping.
One-day free shipping…without a membership fee. Now THAT would be groundbreaking. Stay tuned.
— Walmart (@Walmart) April 26, 2019
Walmart, to begin with, will cater to orders from Phoenix and Las Vegas in the US and by the end of this year, it will expand to 75 per cent of the US population, Marc Lore, President and CEO, Walmart e-commerce US announced in the company’s blog post.
Membership vs Minimum Order Size
Currently, the service would be available for up to 2.2 lakh most frequently bought products and on order bucket of minimum $35. In comparison, Amazon doesn’t ask for a minimum purchase value for free or next-day delivery but in lieu, it seeks customers to have $119 annual Prime membership.
“Membership model works in the retention of customers like Amazon Prime wherein it bundles delivery along with videos. So there is an incentive for customers to come back on the platform as they prepay for it. With respect to particular order size, while it could potentially cover the delivery cost to an extent for the company but it could also have customers to buy more to get free delivery,” Grant Thornton director Kovid Chugh told Financial Express Online.
Importantly, Walmart has already been offering same-day pickup in its stores since 2011 and two-day free shipping since 2017.
While Lore didn’t the cost company is incurring in offering the next-day service but he said that it will “cost us less” because “eligible items come from a single fulfilment centre located closest to the customer,” he said. Hence, the orders that are shipped in one box and travels a shorter distance through inexpensive ground shipping whereas online orders come in multiple boxes from different locations and that can be expensive.
What Walmart can also leverage is its base of 4,700 stores that allows customers to order online and collect offline from its nearby stores, unlike Amazon.
However, a recent report from the global investment bank, UBS said that the next day delivery is expected to cost Walmart $215 million in incremental investments, based on its e-commerce revenues, to match Amazon’s one-day shipping offering. Nonetheless, it would manageable for Walmart to do that, CNBC reported citing UBS report.
“While Walmart has an advantage of a network of dark stores but it would still come down efficiency in logistics in which Amazon has an edge over Walmart since Amazon was built as an e-commerce model. Businesses transition from online to offline whereas Walmart is transitioning backwards. Nonetheless, the competition would still be pretty evenly divided,” said Chugh.
In overall online retail, Walmart is making the progress as its sales went up 43 per cent during the fourth quarter even as its online sales growth of 40 per cent for entire 2018, matching what it had expected. For this year, Walmart is looking at a 35 per cent increase in online sales with quarterly growth between 30 per cent and a low 40 per cent, CNBC quoted its Chief Financial Officer Brett Biggs.