Wal-Mart Expands Free Two-Day Shipping
June 29 2016 - 6:48PM
Dow Jones News
By Sarah Nassauer and Loretta Chao
Wal-Mart Stores Inc. is stepping up its battle with Amazon.com
Inc., expanding a free two-day shipping program and seeking to list
even more items on its website.
On Wednesday the retailer said it would open its free two-day
shipping program to any U.S. customer, an expansion of the $49
per-year service designed to grab shoppers from Amazon's popular
$99 a year Prime program. Until now Wal-Mart allowed only a limited
and undisclosed number of shoppers to sign up.
"ShippingPass is about half the price of similar programs out
there," Fernando Madeira, CEO of Walmart.com's U.S. operation said
in a blog post to announce the expansion, a nod that Amazon Prime
is in its sights.
The move shows Wal-Mart believes the steps it has taken to
improve its fulfillment capabilities have prepared it to compete
head on with Amazon Prime for the growing slice of retail sales
that take place online. Wal-Mart, which has been struggling with
sluggish U.S. sales growth, has made bolstering its e-commerce
operation a priority and is investing $2 billion to that
business.
Wal-Mart "realized they can't bury their head in the sand like
an ostrich," said Foster Finley, managing director at global
consulting firm AlixPartners. Two-day shipping is "tacit
recognition that they simply can't ignore the fact that Amazon and
businesses like Amazon have mentally raised the bar in the minds of
consumers."
U.S. consumers increasingly expect Prime-like delivery speeds.
But fast delivery to many customers' homes is costly to fulfill,
requiring heavy investments in warehouse, inventory and
transportation management technologies, which makes it difficult
for brick-and-mortar retailers to maintain their margins.
Studies have shown the time consumers are willing to wait to
receive packages is decreasing, while their expectations of free
shipping is increasing. In a survey published this month of over
1,000 U.S. consumers, AlixPartners found that online shoppers
expect to wait an average of 4.8 days for delivery, down from 5.5
days in 2012. And the share of those who are willing to wait more
than five days has declined to 60% from 74% in four years.
Wal-Mart's move has been years in the making. Last year the
retailer began experimenting with three-day shipping for a limited
pool of members who pay the annual fee to participate in the
program, called ShippingPass. In May, it shortened the delivery
window to two days, and Wednesday expanded the program nationwide.
To get ready, the retailer has shifted more inventory to seven
massive online warehouses around the U.S. and signed partnerships
with smaller regional carriers to deliver more of its packages. A
Wal-Mart spokesman says that ShippingPass is still a "pilot" that
could change, and that only products sold directly by Wal-Mart are
currently eligible for free shipping under the service.
Despite the rush to achieve two-day shipping, doing so is still
a loss-making venture for many retailers, especially for shipping
low-margin consumer staples like boxes of pasta or bars of soap to
remote parts of the country. Amazon, meanwhile, can subsidize the
shipping costs of its retail business with cash from its
high-margin services, like cloud-computing and its "Fulfillment by
Amazon" service for third-party sellers.
In response to a question about Wal-Mart's program, Amazon said
it believes its Prime program is "the best deal in the history of
shopping."
Wal-Mart also is working to rapidly increase the number of
third-party sellers on its website, taking another page out of
Amazon's playbook. Executives have said its website now has about
10 million products compared with about 120,000 items available in
the average Supercenter. By comparison, Amazon.com has hundreds of
millions of products.
Third-party sellers pay a commission on sales that pass through
retailers' websites, but they often shoulder the warehousing and
shipping costs themselves, making those sales more profitable for
the retailer. Amazon collects a commission for each sale, typically
around 15%, and charges merchants to store and ship items from its
warehouses. About 50% of Amazon's products are listed by
third-party sellers.
For now, Walmart.com is only listing products from third-party
sellers that can ship orders on their own, said Tri Huynh, director
of business development and seller integration at Wal-Mart on a
conference call Wednesday.
In April Wal-Mart announced a partnership with ChannelAdvisor, a
firm that helps such merchants gain access to online retailers.
Third-party sellers can set their own shipping prices, said Mr.
Huynh. Still, most customers prefer free shipping, he said, so if
companies have a "business model where you can offer free shipping
you have a much greater chance of doing well."
Write to Sarah Nassauer at sarah.nassauer@wsj.com and Loretta
Chao at loretta.chao@wsj.com
(END) Dow Jones Newswires
June 29, 2016 18:33 ET (22:33 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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