Wal-Mart Stores Inc.’s planned competitor to the Amazon Prime service will have a price advantage, but catching up with its e-commerce rival won’t be easy.
Wal-Mart announced plans Wednesday to give online customers unlimited free shipping for $50 a year, half the cost of Prime. What it lacks is Amazon.com Inc.’s speed of delivery, along with the bevy of other perks that come with a Prime account.
“Prime is about so much more than shipping,” Matt Nemer, an analyst at Wells Fargo & Co., said in a report on Thursday. It offers digital music, e-books, TV shows, photo storage and other benefits, helping keep customers loyal. And Wal-Mart is late to the party, he said. “Frankly, we’re surprised it took Wal-Mart this long to launch any sort of loyalty program.”
There’s also the question of how quickly Wal-Mart’s service will roll out. For now, it will be available by invitation only in select markets, said Ravi Jariwala, a spokesman for the Bentonville, Arkansas-based company. He declined to say what markets will be included in the initial test, how long it will last or how many people will be invited. More than 1 million items -- including apparel, sporting goods, electronics and toys -- will be available for delivery in three days or sooner. But that compares with more than 20 million for Amazon Prime.
The move is part of a broader showdown between retailers and e-commerce marketplaces. The approach of “‘buy-in membership’ is likely key to customer frequency, retention, and ultimately wallet share,” Nemer said. He expects Alibaba Group Holding Ltd. to add to the competition, along with newcomers like Jet. That startup is planning a sort of online Costco later this spring. It will offer 10 million discounted products, also for a $50 membership fee -- the same price as Wal-Mart.
Amazon Prime’s U.S. customers pay $99 a year for a membership, which includes delivery discounts and online streaming of video and music. The service’s members grew by more than 50 percent in 2014 from a base of “tens of millions,” according to Amazon. Prime members also tend to spend more than occasional shoppers.
For that reason, Amazon is trying to boost Prime membership with new perks. In December, it introduced same-day delivery for Prime members in Manhattan and has since expanded the service to additional cities, including Dallas and Miami.
That’s an advantage over Wal-Mart. While the retail chain’s new service would offer three-day shipping, Amazon could have two-hour delivery in every major metro area within a year, if not sooner, Nemer said. Wal-Mart has five fulfillment centers in North America, while Amazon has 68, he said. Amazon’s facilities also are more sophisticated, relying on Kiva robots to fill orders.
Macquarie Research analyst Ben Schachter estimated last month that Amazon has at least 35 million Prime members and that approximately 50 percent of U.S. households will have a membership by 2020.
Wal-Mart, meanwhile, is trying to pull out of a sales slump and improve customer service. The company cut its sales forecast in February, and higher spending on wages and other investments have raised concerns for investors. Wal-Mart shares gained 0.7 percent to $78.72 at the close in New York. They have dropped 8.3 percent so far this year.
The company has been working for years to convert its brick-and-mortar retail dominance into e-commerce might. The company’s website, Walmart.com, has an average of 60 million unique visits a month and offers about 8 million varieties of product.
The site also is integrated with its physical stores through services like “Walmart Pickup,” which lets customers place orders online and then pick them up at a store for free. A related service, “Pickup Today,” allows shoppers to retrieve an online order within four hours from a store that already has the desired product in inventory.
The new delivery program will help, but Wal-Mart still has a long way to go, Nemer said.
“While we’re encouraged Wal-Mart is jumping into the mix, Wal-Mart will have heavy lifting ahead to catch up with Prime, which we believe will continue to push the envelope on shipping speed and add new services,” he said.