It's no secret that the rise of e-commerce giant Amazon has been disruptive to brick-and-mortar chains like Wal-Mart . Amazon's Price Check app turned those stores into big showrooms, and its Amazon Prime subscription service lured in millions of users with a clever combination of free shipping, discounts, and streaming services.
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Now, a decade after Amazon Prime's initial launch, Wal-Mart is finally ready to retaliate with its own subscription-based delivery plan. The program -- which will be tested on an invite-only basis in select markets this summer -- offers unlimited three-day free shipping on over 1 million products with no minimum purchase required. The service will cost only $50 per year -- half the price of Amazon Prime's $99 annual fee.
Wal-Mart's advantagesWal-Mart's main advantage compared to Amazon is that it can turn its 4,540 stores in the U.S. and 6,301 stores overseas into shipping centers.
According to Wal-Mart, roughly a third of its online orders are already picked up or shipped from those stores instead of its regular distribution centers or dedicated U.S. online fulfillment centers. By comparison, Amazon runs64 fulfillment centers in the U.S., three in Canada, and several outsourced centers in other countries.
Wal-Mart's second advantage is its price tag of $50 per year, which would undercut both Amazon Prime and Google Express.
Source: Company websites.
Wal-Mart's service is the slowest, but it could be a good option for shoppers who aren't in a hurry. For those who are in a rush, Wal-Mart currently offers an online grocery delivery service -- similar to Prime Fresh and Google Express -- in five markets. That service costs $5 to $7 per delivery, but unlike Amazon or Google, it offers a free curbside pickup option for online orders.
Wal-Mart plans to invest $1.2 billion to $1.5 billion on expanding its e-commerce efforts this year, up from $1 billion in 2014. Last quarter, Wal-Mart's online revenue rose 17% annually, but that growth failed to prop up its top line, which slipped 0.1% year over year.
Amazon's advantagesWal-Mart's service has an enticing price tag and a potentially large distribution network, but it probably won't become a threat to Amazon.
That's because Amazon Prime is much more than a free two-day shipping service. Members also get special discounts, free cloud storage space for photos, free media streaming of select content, free e-books from the lending library, and other benefits. Amazon lets Prime members share their accounts with up to four household members. Amazon also sells electronic devices, like the Kindle Fire and Fire TV, at low margins to tether more customers to that digital ecosystem.
Amazon Prime. Source: Amazon.
Amazon doesn't report Prime membership numbers on a regular basis, but RBC Capital estimates that its member base grew from 20 million to 50 million subscribers between last January and September. RBC also estimates that Prime members spend 68% more per year than non-members. That user growth and customer loyalty is extremely problematic for Wal-Mart, since it's unlikely that the same customer will subscribe to both Prime and Wal-Mart's three-day shipping service.
Amazon is also expanding its ecosystem into homes by testing out new devices like the Dash Barcode Scanner and Dash Buttons. The barcode scanner lets users buy household items from Amazon by saying the item's name or scanning the barcode. Dash Buttons streamline that process by placing simple branded buttons in homes for one-touch ordering.
Amazon's Dash button. Source: Amazon.
The verdictIn my opinion, Wal-Mart's "answer" to Amazon Prime won't change customer shopping habits at all. At this stage, there's simply no way for Wal-Mart's fledgling service to effectively compete against Amazon Prime unless it also offers cloud storage, free streaming media, cheap branded consumer electronics, e-books, and original shows. So long as Amazon keeps bundling all of those together at a lucrative price, rivals like Wal-Mart and Google could have a tough time keeping up.
The article Will Wal-Mart Stores, Inc. Crush Amazon.com, Inc.'s Prime Service? originally appeared on Fool.com.
Leo Sun owns shares of Apple. The Motley Fool recommends Amazon.com, Apple, Google (A shares), and Google (C shares). The Motley Fool owns shares of Amazon.com, Apple, Google (A shares), and Google (C shares). Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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