Walmart launching its own version of Amazon Prime is another instance of the etailer’s ideas being aped by rivals but few will be able to afford the proposition.
Earlier this week a technology investor was lamenting with me how the rest of the retail industry always waits for Amazon to innovate before following its lead, rather than striking out alone with their own innovations.
As if to prove his point, just two days later it emerged Walmart was going to launch an unlimited delivery service of its own to take on the runaway success that is Amazon Prime.
Although Walmart’s service is cheaper than Amazon’s at $50 (£31.7) a year, the fundamental idea is the same but it does not have the value-add of a free video streaming service for those who sign up.
While it makes sense for retailers to copy Prime in theory, the reality for most is very different because of the huge costs it takes to run such a service.
Amazon chief financial officer Tom Szkutak admitted at its results last month that its margins were hit hard by it investing so heavily in its nascent Prime business a few years ago.
Only now are its margins beginning to recover, although Amazon continues to invest heavily and still made a $57m (£37.5m) net loss in its first quarter ending March 31.
Therefore only a player with the scale of Walmart can realistically afford to compete with Amazon at their own game.
Changing shopping habits
It is possible to imagine that Walmart-owned Asda could launch a Prime rival in the UK, although Walmart’s far wider general merchandise range makes its unlimited delivery service a more attractive proposition than the equivalent offer being run by grocery-focused Asda.
One of the most interesting things to emerge from the success of Amazon Prime is the way it could change shopping habits. Some Amazon shoppers now pay for one or two cheap items at a time rather than buying in bulk to save on delivery.
This is undoubtedly a win for the consumer but would place huge pressure on the margins of any retailer that attempts to launch its own version of Prime.
The small margins made on online delivery is oft talked about, so it is hard to imagine many launching an Amazon Prime killer any time soon.
Although logistic innovations are bringing costs down so it is foreseeable that in the future the majority of retailers will offer unlimited delivery.
Amazon’s financial clout makes Prime possible and because other retailers are unlikely to be able to afford to launch their own version they would be best coming up with their own fulfilment innovations. It is time they created something for Amazon to emulate.