Get in touch!

Advisement? Consulting? Speaking? Your thoughts? Let's talk.

917.426.5780


 
×

Can Walmart Really Steal Amazon’s Thunder with Free 2-Day Shipping?

Walmart’s recent announcement about scrapping it’s $49/year Amazon Prime rival program ShippingPass, in favor of a no cost, anyone can benefit, free two-way shipping policy, has generated buzz for the retailer. Now anyone purchasing at least $35 worth of merchandise from a 2 million item assortment can get the deal.

The press is spinning this as a shot across the bow of Amazon and/or a big step towards Walmart retaking its expected place as a dominant e-commerce merchant. It likely will help reposition them some, but it’s doubtful that Amazon is going to feel much of a pinch from the move.

Amazon and Walmart largely serve two different demographics, with an overlap in the middle. A middle that is surely widening as e-commerce expands and each competitor grows their digital customer base.

Amazon’s Prime is suited to early adopters and heavy buyers, who are the kinds of people with more disposable cash than Walmart’s customers and are those willing to drop (now) $99/year for the service. With a reported 52% of Amazon customers in the program, it’s working well. So with such a massive market saturation, Prime has nowhere to go but to aim for lower income, less prolific, and less savvy shoppers. Effectively, that will expand the overlapping territory in the direction of Walmart’s main demographic.

Inversely, Walmart, if it ever wants its digital commerce to have a meaningful impact on revenue, needs to both turn its base of characteristically limited income, price sensitive, and physical retail oriented shoppers into more fertile digital shoppers and hike its way upwards into the core of Amazon’s base.

Amazon offers 50 million items within 2 days (25 times more than Walmart) via free Prime shipping and anyone can get free standard (not 2-day) delivery for only $14 more than their competitor’s revised threshold.

Yet, the wildcard is Marc Lore. He’s the former CEO of Jet and in some expert’s opinion, the primary reason for the Jet acquisition. More than that, as a result of Amazon’s leveraged acquisition of Lore’s prior company Quidsi, he became an unintentional lieutenant of Jeff Bezo’s. So he does bring insider information/experience about Amazon’s methods, strengths, and weaknesses and may be engineering a Walmart strategy to exploit Amazon inadequacies.

There is only so much a small Internet merchant can bear, given their inherent disadvantages in funding, logistics, buying power, delivery management, software development, and more.

Regardless of how the two fight it out, the most likely casualties from Walmart’s free shipping update are small e-tailers that sell commodity or CPG goods. They’re already under pressure from a sea of Internet competitors, especially Amazon. They feel the pain every time a new trend such as free shipping takes hold. With the planet’s biggest deep-pocketed retailer lowering the bar and effectively aiming at non-Amazon Prime customers, mid-sized and mom and pop merchants have way more to lose than Amazon or other direct Walmart competitors like Target or Kohl’s.

Small merchants find niches in the gaps between the goliaths and serve audiences that are disenfranchised by big merchants, buy from vertically integrated sites, forgo loyalty for the lowest price, or seek local purveyors. The Walmart change will fill in some of those gaps, leaving the smalls, less breathing room and fewer opportunities for market expansion.

Additionally, returns are a big expense for small Internet-only sellers. An early hiccup in e-commerce’s onslaught of brick and mortar retail was returns. Prior to retailers instituting practically hassle-free in-store returns for on-line purchases (which was a long time coming), customer’s skipped buying where they thought returns would be costly and/or difficult. Today that service is largely ubiquitous for multi-channel merchants and reasonably addressed by Amazon. Smaller sellers vary greatly on return policies and execution, so Walmart, with 5,300 stores accepting returns, is now pressuring them to not only lower free shipping thresholds, but to make return mechanisms more compelling.

There is only so much a small Internet merchant can bear, given their inherent disadvantages in funding, logistics, buying power, delivery management, marketing, software, and more. That’s old news when the word Walmart enters the conversation. It’s a company that has a reputation for damaging downtown America and now, often faces protests and resistance from towns that don’t want their main street to be shuttered. No such protective fervor or support exists for merchants in cyberspace.

The bottom line: I disagree with most pundits and journalists as to who the recipient of the fallout will be.

My expectation is that Amazon will stay on track, Walmart will greatly expand qualifying free shipping items, their digital sales will grow noticeably in the next two years, they will make additional disruptions to the digital commerce landscape, and more independent merchants will suffer and fade just as local retailers have when the megastore has come to town.