Earlier this week, Wal-Mart (NYSE: WMT) tried to jump-start its online business by dropping its $50 annual fee for free two-day shipping, replacing it with an offer of free two-day shipping on any orders over $35. It's a move designed to get people who pay Amazon (NASDAQ: AMZN) $99 a year for free two-day shipping (and some other perks) through its Prime membership to consider switching. Even if those customers don't drop Amazon Prime, or switch completely to Wal-Mart, the retailer's new offer might encourage people to compare prices more often.
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Wal-Mart's new eCommerce CEO Marc Lore lauded the move in a press release. The executive has a long history as an entrepreneur and came to his new position when Wal-Mart bought his Jet.com start-up for $3 billion.
"I couldn't be more excited. We are moving at the speed of a start-up," said Lore in the press release. "Two-day free shipping is the first of many moves we will be making to enhance the customer experience and accelerate growth."
This offer covers "more than two million items," while Prime claims to have "tens of millions of items available in two days." But Wal-Mart is raising the stakes on free shipping and greatly exceeding what Amazon offers non-members, while one-upping retail rival Target's (NYSE: TGT) free shipping plan when it comes to speed of delivery.
Wal-Mart ships some online orders from its stores and others from warehouses. Image source: Wal-Mart.
What does each company offer?
All three major retailers offer some sort of free shipping. Here's a look at the standard offers from Wal-Mart, Target, and Amazon. (Target and Wal-Mart have offered different holiday deals some years.)
- Wal-Mart: As noted above, the company now offers free, two-day shipping on any order over $35.
- Target: The retailer actually has a lower free-shipping threshold at $25, but it offers "standard shipping," which takes 3-5 business days. The company also offers free standard shipping on any Target.com order paid for with its REDcard credit or debit card, though not every item is eligible.
- Amazon: The online retailer clearly wants people to join Prime as its free shipping offer for those not in Prime requires purchases of either $25 in books or $49 of eligible items that are "delivered 5-8 business days after all of your items are available to ship, including pre-order items," according to a company webpage.
If you can wait for your items, Target offers a better deal for smaller orders, but the difference between $25 and $35 is generally a question of adding an item or two. Target arguably has a high-quality free shipping offer to REDcard holders, albeit a slow one. Wal-Mart, however, clearly has the best overall free shipping deal with no membership requirements if you combine order minimum and speed of delivery.
Can Wal-Mart catch Amazon?
Lore deserves credit for thinking like a start-up executive. Wal-Mart simply was not going to get mass buy-in to a $50-a-year free two-day shipping membership program when Amazon Prime already has an estimated 65 million U.S. members. Those consumers are especially loyal to Amazon, estimated to spend on average about $1,200 per year, compared to about $600 per year for non-member customer.
It's hard to picture massive numbers of Amazon shoppers dropping Prime and jumping to Wal-Mart. Some value-conscious customers might, but it's likely to be a small amount. Had Wal-Mart made this offer before Amazon had signed up around half the households in the U.S. for Prime, then perhaps the results would be different.
Still, while it won't cause an immediate shift in consumer behavior, Wal-Mart's offer should jump-start its e-commerce efforts. Lore has created a deal which might tempt people who rarely shop online and it should make Amazon customers more willing to buy on Walmart.com when that site has the item they want or a better price.
It's a long race and Amazon has a really big lead, but thinking like a start-up should help Wal-Mart make up some ground. If this is truly the first move of many, Lore has announced his presence loudly, putting Amazon on notice.
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