Why Wal-Mart took a pass on ShippingPass
February 2, 2017 11:21 AM
Wal-Mart Stores Inc.’s decision to cut its Prime-like ShippingPass program about 18 months after launching it reflects a shift in the retail giant’s approach to competing with Amazon.com Inc., observers say.
“It was a big signal they sent to the market that e-commerce is about growing fast or dying slow,” says Guru Hariharan, CEO of retail and e-commerce pricing analytics firm Boomerang Commerce. “They’re sending constant signals that they’re going all in on e-commerce.”
As of Tuesday, all Wal-Mart shoppers receive free two-day shipping on online purchases of $35 or more for goods bought directly through Wal-Mart, which includes more than 2 million items. Purchases on its marketplace are excluded.
Wal-Mart had been trying to generate interest in ShippingPass, which offered free two-day shipping (with no minimum order) and returns on online orders for a $49 annual fee. In June, Wal-Mart offered free 30-day trial memberships to the program. That move appeared to catch shoppers’ attention, at least in the short term. Just over a week after announcing the free trial, Wal-Mart said the number of shoppers signing up on a daily basis “more than quadrupled” compared with the week before, though the retailer declined to specify numbers.
Wal-Mart’s program cost $50 less than Amazon’s $99 Prime service, but ShippingPass did not come with such perks as streaming video and music, digital photo storage and more that Prime includes.
“Essentially the ShippingPass offering was very similar to the online shopping and fulfillment offering that Prime represents, but the Wal-Mart offering is not really comparable because it fails to deliver the value that Prime provides outside of the e-commerce fulfillment experience,” says Mike Elmgreen, chief marketing officer at B2B e-commerce platform Handshake Corp. “Offering something that is literally on par [with Amazon Prime] from a shipping and fulfillment perspective doesn’t really cut it” for a retailer that wants to attract Prime customers.
The product selection that Amazon offers shoppers may justify the cost of a Prime subscription, at least to some shoppers. According to an analysis done by Colin Sebastian, an e-commerce analyst at Robert W. Baird & Co., Amazon has 45 million products that are eligible for free shipping to Prime members, compared to the 2 million Wal-Mart is offering free shipping on.
“At this point, only Amazon and the warehouse clubs (Costco, Sam’s Club, BJ’s Wholesale Club) have succeeded in generating a paid member base—the warehouse clubs because they can bar the door if you aren’t a member and Amazon because it started first and created a real value-add membership program,” adds Josh Lowitz, partner and co-founder of securities research firm Consumer Intelligence Research Partners LLC, or CIRP.
“[Wal-Mart] has to provide enough incentives so that the customer is switching to them from Amazon,” Hariharan says. “You need to have a high amount of incentives to get people to do new things. It’s a holistic approach that Wal-Mart would want to take and it’s not a choice anymore.” Dropping ShippingPass is a clear signal to other retailers as well that competing with Amazon “is not a game of wait and watch, its act now,” he says.
Wal-Mart’s decision to drop the paid membership program in favor of a free shipping model comes five months after the retailer acquired online marketplace startup Jet.com in a $3.3 billion cash and stock deal and installed Jet founder Marc Lore as its head of e-commerce. Similar to warehouse clubs, Jet.com initially required a $50 membership fee to shop there, but eliminated the fee three months later, saying it wanted to reach more shoppers. Analysts say the move to kill ShippingPass has Jet’s fingerprints all over it.
“A few months into their launch, Jet.com decided to forego its planned membership fee and now a few months after acquiring Jet.com, Wal-Mart made a similar decision,” Lowitz says. Since its launch Jet.com has offered free shipping on all orders of $35 or more, the same minimum order value Walmart.com is now implementing to get free two-day shipping.
Data shows that Wal-Mart, No. 4 in the Internet Retailer 2016 Top 500 Guide, and Amazon (No. 1) are competing for many of the same customers.
Marketing analytics platform Jumpshot reports that 62% of all Wal-Mart online shoppers also bought from Amazon from August 2016 through January 2017. Meanwhile, CIRP’s data shows 94% of Amazon.com shoppers also shop at Wal-Mart, either online or in a store, Lowitz says. Furthermore, when polling Amazon shoppers, CIRP asks them where they would have purchased a product had they not bought it from Amazon, Lowitz says 25% of consumers polled say they would have bought the item from Wal-Mart, and 40% of those shoppers say they would have made the purchase at Walmart.com.
The most recent data from CIRP shows that Amazon has 65 million Prime customers in the United States as of Sept. 30. Wal-Mart’s decision to eliminate a $49 membership fee for free two-day shipping may be enough to sway some cost-conscious Amazon shoppers to its side, experts say.
“It certainly undercuts Amazon on price,” says Keith Anderson, vice president of strategy and insights at price monitoring firm Profitero. “Two-day shipping without a membership fee may be attractive to households that aren't willing to spring for Prime, and it could lead some households to cancel their membership if they aren't using some of the ‘value-added’ services bundled with Prime membership and just want low prices and free shipping.”