Retailer Challenges Amazon with Unlimited Shipping
Some companies are particularly swift at realizing a second-mover advantage: allow another firm to warm the market to a new concept, then jump in with a superior product and greater scale. First-mover head starts can be greatly overrated. Then again, some competitive response gaps can leave consumers wondering.
News emerged yesterday that Walmart will begin testing a $50-per-year, all-you-can-eat shipping service similar to Amazon Prime, Amazon’s $99-per-year membership service that includes free two-day shipping and unlimited access to Prime Instant Video content and the Kindle Lending Library.
Walmart will introduce its currently unnamed shipping service on an invite-only basis with limited geographical coverage and a restricted selection of products. A direct comparison to Amazon Prime is difficult given the differences in the package deals, but Walmart’s pricing is competitive — the $50 disparity could help users to cover about half of a Netflix subscription, for example.
The companies’ customer bases don’t completely overlap, but there’s no mutual exclusivity either. Amazon doesn’t release Prime membership figures, but it’s clear that tens of millions of households in the US are Prime subscribers. A fair portion of America’s entire population is looking to spread the Prime annual fee over more shipments of everyday items, and this is costing retailers like Walmart.
The US Department of Commerce says that about 93% of American retail sales are still via brick-and-mortar transactions, and the numbers will continue to favour physical stores for years to come. More than a trillion dollars are currently spent each quarter at US stores, and less than $100 billion via e-commerce sites.
Given the statistics, Walmart appears to have its priorities straight. Its Web-based business shouldn’t be a distraction to its cash cow, but all companies must be vigilant in recognizing trends. Online retail transactions have tripled in the past 10 years in the US. Full-year 2014 e-commerce sales grew more than 15% over 2013, and early stats indicate this will also be the case for 2015. Walmart is standing on a large and fast-moving glacier.
Amazon introduced its Prime service in 2005, and is a decade past its trial phase. Rivals including Google have since at least tested similar shipping-based subscriptions, and it’s fair to question why Walmart has waited so long to debut a competitive response.
Walmart is replicating rather than circumventing. There aren’t rules against this, and often second-mover advantages are the best strategy for reaching mass scale — the iPhone was launched 10 years after early smartphone models were introduced, for example, but Apple didn’t have to concern itself with legacy platforms.
Walmart isn’t new to the digital world. Its delayed response might work in its favour, enticing current Prime members with better pricing. Amazon broke in the market, but perhaps Walmart will take it from here. The company needs to act fast to make this slow-mover advantage work.
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