Why Walmart's Free Shipping Play Won't Work
By Matt Pillar, chief editor
In late January, Walmart introduced free two-day shipping on select merchandise at Walmart.com. The only string attached is a minimum $35 spending threshold to qualify. From a shopper’s perspective, that’s pretty awesome, right? Consumers have come to expect shipping to be fast, but two-day shipping, for free, and not just during the holidays but all the time? That’s pretty big news.
One would think the move, instigated by Walmart E-Commerce President Marc Lore, of Jet.com fame, would rock Amazon back on its heels. That’s what the strategy is designed to do, after all. Amazon is still asking Prime members to cough up $99 per year for “free” two-day shipping.
Walmart is no stranger to reaching for an e-commerce foothold wherever it can find one in the fight against its online rival. The company already tried to undercut Prime once, and it didn’t work. For a year prior to this latest free shipping off er, Walmart’s ShippingPass program promised “free” two-day shipping to members who paid a $49.00 annual fee. That’s half the cost of an Amazon Prime membership, but it clearly wasn’t enough.
Welcome news to consumers though it may be, the impact of Walmart’s free two-day shipping play will have minimal impact on consumer loyalty to Amazon. Here’s why.
More competition equates to better prices. A full-on side-by-side price comparison of Amazon.com and Walmart. com would be foolish given the real-time dynamics of price optimization software leveraged by both companies. As an anecdotal case in point, I searched for an identical set of truck tires on both sites. Amazon’s lowest price from more than a dozen suppliers was nearly $40.00 cheaper than Walmart’s lowest price from just four sellers. And to get Walmart’s “below manufacturer’s suggested price,” I had to add the tires to my cart and submit my name and e-mail address.
Amazon crushes Walmart on the volume of its third-party merchant offerings. Amazon hasn’t revealed how many sellers are engaged in its marketplace since 2014, when the figure approached 2 million. By contrast, analysts at Robert W. Baird & Co pegged Walmart’s year-end 2016 volume of marketplace sellers at just 1,000. More sellers mean more competition, and more competition means lower and more transparent pricing. Those are simply worth the cost of Prime membership.
Better selection of two-day shipping eligible merchandise. Amazon offers 40 million products eligible for two-day shipping with a Prime membership. That’s estimated to be 20 times the selection of merchandise eligible for free two-day shipping from Walmart. Selection is a central tenet of merchandising, Amazon has it in spades, and again, that’s value worth paying for.
Free + fast is not necessarily expected. Walmart’s Lore went on record saying, “In this day and age, two-day shipping is really just table stakes. People shouldn’t have to pay for it and certainly not a membership.” But his sentiment, however much appreciated, might be a bit premature. In its 2016 Pulse of the Online Shopper report, UPS found that half of shoppers are still willing to pay a premium for faster shipping.
Stores included, Walmart can still outrevenue Amazon 5:1. But online, where e-commerce activity still accounts for just 3 percent (about $13 billion) of Walmart’s topline sales, the merchant faces a monumental climb to compete with Amazon’s $100+ billion in e-commerce transactions. It’s trying, no doubt. Offering free two-day shipping on select merchandise is big, but it’s nothing compared to Walmart dropping $3 billion on Jet.com last summer. The sum of continued investments like these might move the needle, but this is one battle that won’t be won on differentiation. If it really wants to make up ground, Walmart.com needs to focus on broadening its selection and creating price competition by building its third-party merchant base significantly. To catch up with Amazon, it needs to be more like Amazon.