Opportunities, pitfalls noted with Wal-Mart’s test of subscription delivery

by The City Wire staff ([email protected]) 268 views 

News that Walmart.com would begin testing a $50 subscription that provides unlimited deliveries to online shoppers within three days, did not come as a surprise to some. Market watchers say it is not enough to threaten Amazon with its Prime program.

The retail giant confirmed Wednesday (May 13) that it planned to test a subscription plan this summer by invitation only. The plan will cover about 1 million items of general merchandise and does not include video upstreaming or other features offered by Amazon Prime, which costs consumers $99 a year.

Annibal Sodero, supply chain expert at the University of Arkansas, said he has waited two years for a surprise from Wal-Mart, but the subscription test looks like the retail giant is playing a game of catch-up. While he’s seen some interesting applications like Scan and Go that address consumer issues, Sodero said too often Wal-Mart is the second mover.

He also questioned why Wal-Mart decided to test a subscription-based service which is a loyalty program at its core. Sodero said Amazon aligns everything around loyalty with Prime users who often see the $99 as a value play given the benefits of streaming video, Box, Dash and price check apps that provide for convenience and savings in time and money.

“You have to ask what is Wal-Mart’s goal with this subscription test? Will it promote loyalty in its limited scope and what might be the consequences to its other businesses like Sam’s Club,” Sodero noted.

He said Amazon Dash goes directly after Costco customers and wonders if folks who sign up for Walmart’s subscription might forego a Sam’s Club membership in exchange. An avid Amazon user himself, Sodero was recently in New York City on business when he discovered he left his voice recorder at home.

“As an Amazon Prime member, I quickly downloaded the Amazon Prime Now app, found the recorder and batteries I needed, ordered, and it was delivered to my hotel room in two hours for free,” Sodero said.

He doesn’t think Wal-Mart beats Amazon by mimicking their programs, but said Wal-Mart does have an opportunity to innovate solutions that use its massive infrastructure to its advantage. He applauds the use of in-store pickup.

Max Goldberg, retail expert and president of Max Goldberg & Associates, noted in a recent RetailWire blog: “Walmart once again finds itself playing catch-up in the digital world and resorts to a time-tested technique, cutting prices …. This time it won’t work.”

He said while the new Walmart offer will spur some signups, it will not threaten Amazon’s digital dominance.

Jason Long, CEO of Shift Marketing Group agrees. He said less than 1% of Amazon Prime members consider buying from a mass retailer website like Walmart.com or Target.com. 

"That is a shocking number and has likely forced Walmart’s hand as the number of Prime members continues to grow. I’m glad to see Walmart step up to the plate here and try to see if they can make the subscription model work," Long added.

Mohamed Amer, vice president with SAP Global Retail, said it makes sense for Walmart.com to test the waters to better understand the trade-off consumers make between delivery window and program fees. But he cautioned that Amazon Prime is a hard act to follow.

Carol Spieckerman, CEO of newmarketbuilders, said Wal-Mart’s subscription-based foray is clearly in beta stage so it would be premature to make any judgments about how, or if, it will roll out. That said, Spieckerman believes the potential is tremendous. She said the media often judges Walmart based on outdated assumptions, including pinning the Walmart shopper as being behind the digital shopping curve, which is not the case today. 

“Clearly, Walmart shoppers are ordering products online and utilizing all of Walmart’s current delivery and pick-up options. The real opportunity and scale will kick in when and if Walmart ties its third-party online marketplace sellers into the program. Then and only then will Walmart have true ‘Amazonian’ potential from a product standpoint,” Spieckerman said

The subscription service and other non-traditional retail moves by Wal-Mart have caused Sodero to wonder about the future role of the supercenter. Kantar Retail analyst Leon Nicholas said two years ago that Wal-Mart’s supercenters remain the cash cows, and while Neighborhood Market store growth has improved, it’s still the supercenter generating the bulk of the retailer’s revenue.

Sodero said if Wal-Mart really wanted to compete head-to-head with Amazon they would need to flip their focus to San Bruno and perhaps turn their massive store network into fulfillment centers. But no one expects that to ever happen, given the success of the supercenter profit structure.

The dangers he sees in Walmart.com testing a loyalty subscription plan is that it will need to exceed shopper expectations which raises the bar for everyone along the supply chain.

“If there are any weaknesses in the supply chain they will become exposed. There are also higher costs associated with last mile delivery which has to be funded by someone, if not the retailer, then it will be suppliers,” Sodero said.

He said if the subscription test is successful for Walmart.com, it would be good for business in a sense that subscription plans lock users into a relationship with the retailer. But if the retailer under delivers in any way there is little chance they will get that customer back.