Wal-Mart Expands Free Two-Day Shipping
Looking to better compete with Amazon Prime, retailer also adding products to site
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.”
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, ECOM 3.65 % 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.”
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