International analysis: Walmart throws down the gauntlet to Amazon

With Walmart reportedly launching its own subscription service, cheaper than Amazon Prime, we are finally seeing just how serious the retailer is about expanding its ecommerce business.

Online is a clear priority, experiencing significant growth in recent quarters as Walmart added additional coverage and functionalities. While some had commented on the lack of momentum shown by Walmart lately, this announcement should dispel any doubts.

Mobile growth

The retailer is now rolling out its Pangea ecommerce platform with a focus on mobile in 2015.

Subscription services are especially suited to higher volumes of small orders via smartphones. Walmart reported 70% of walmart.com traffic in the US came via mobile during the latest holiday period.

Meanwhile, four new online-exclusive fulfilment centres will go live in the second quarter – helping serve a higher volume of orders through a subscription service.

Amazon won’t be losing much sleep over Walmart’s Prime-style shipping service. Firstly, Walmart lacks the assortment needed to support such a service.

While Amazon Prime is available for 20 million items, Walmart is initially testing its service with just one million stock keeping units. There is potential to increase this to the full 7 million items currently available online but the total range would still be dwarfed by Amazon’s.

Customer convenience

Secondly, Walmart will not prioritise customer experience over profitability.

Amazon is in constant experimentation mode, relentlessly trialling new initiatives that make the customer experience easier and more convenient. On the purchasing side, a good example is the introduction of innovative home ordering devices that encourage repeat purchases such as Amazon Dash Button.

Meanwhile, Amazon is not shy of experimentation in making fulfilment more convenient – from testing its own last-mile delivery network to taxi delivery. As we have seen with subscription-based bricks and mortar retailers (such as Costco), the model only works if the value proposition is clear, the assortment unique and there’s a relentless focus on customer service.

Subscription models

Walmart is not the first retailer to recognise the opportunities with an online subscription-based model. Google launched a similar service through its Express shopping division last year ($95 fee for same/next-day delivery).

Moreover, soon-to-be-launched Jet.com, founded by Quidsi Founder and former chief executive, will charge $50 for a delivery service.

Surely, consumers won’t pay to shop at every retailer, so expect competition to heat up here.  

The one thing Walmart does have is reach. It can capitalise on an extremely large pool of existing shoppers (more than 100 million each week) who may be tempted to buy more frequently if they see additional value in a subscription service.

Watch this space.