Recent Amazon, Wal-Mart moves show effort for online sales loyalty

Christmas in July is not a new retailer tactic to draw in shoppers in hopes of hoisting mid-summer sales. Amazon has never taken part in these theatrics until now, according to Stephen Baker, vice president of industry analysis with NPD Group. And the move has the attention of Wal-Mart execs.

Amazon announced plans to commemorate its 20th anniversary July 15 by offering a wide range of promotional pricing for its Prime members. Amazon helped raise the hype by promising more deals than Black Friday. Walmart.com answered with deals of its own which the retailer said is for “everyone, no membership required.” The retail giant said it plans to offer more than 2,200 price rollbacks beginning July 15.

Wall Street analysts were quick to say the two competitors have different agendas. Amazon sacrifices profits for popularity and Wal-Mart manages the bottom line while also trying to save people money, according to Catherine Rampbell, opinion writer for the Washington Post. During a recent interview on CNBC Rampbell said it’s unclear if Wal-Mart can win out in this game or if they have any ground to gain here.

Dan Greenhaus, chief global strategist for BTIG, said Wal-Mart is clearly treading on Amazon’s turf with the July 15 online sales offering. He said Amazon is the dominant online player.

“I can’t imagine that Wal-Mart comes out ahead, but the argument could be they simply want to maintain market share,” he added.

For Baker what most resonates about this pivot by Amazon is that kicking off a day of price wars is a sign that Amazon is truly a retailer.

“Make no mistake, their competition won’t let them have a free ride on low prices or sales noise and Wal-Mart has already made them aware of this fact,” Baker noted in a recent blog.

He said Amazon knows that offering customers free or fast shipping, or a million songs for free, or free photo storage, or movie streaming are just side shows and that in order to grow their business and drive new customers to Prime, the heart of what they need to offer is great prices, because that is what most motivates consumers.

LEVERAGING THE BUZZ
Carol Spieckerman, CEO of Bentonville-based newmarketbuilders, doesn’t see the move by Wal-Mart as necessarily answering Amazon so much as it is leveraging the buzz around Amazon’s Prime Day event to draw attention to its own online value proposition. 

“Wal-Mart is well-known for providing everyday low prices in its stores, perhaps less so online. Riding in Amazon’s wake can help shift the balance,” Spieckerman told The City Wire. “It remains to be seen whether Amazon’s Prime Day event will move the needle in terms of bringing new members into the Amazon ecosystem. Either way, Amazon must continue to hammer home the value of Prime membership as competitors formulate their own responses.”

Rampbell and analysts agree that it’s a bigger story if more retailers take part. Target and Best Buy have long offered Christmas in July deals and with retail behemoths like Wal-Mart and Amazon now following suit consumer interest is likely to grow.

“At this point, Wal-Mart’s main advantage remains price while also staying on top of price challenges through data mining. Amazon continues to drive differentiation by offering breadth of assortment, exclusive content and quick delivery,” Spieckerman said.

Peter Charness, senior vice president of TXT Group and a RetailWire contributor, said Amazon’s client base is more likely to respond to a “flash sale.” He said it remains to be seen whether the deals will rival those of Black Friday. He said it may be more difficult for Amazon to create the deals without massive vendor support than it is for Wal-Mart because of its everyday low price strategy 365 days a year.

Some analysts also noted that the promotion may spur on some sales just ahead of back-to-school. Also, it remains to be seen if either retailer is simply shifting demand ahead and sacrificing margins, said Keith Anderson, vice president of insights for Profitero.

FREE SHIPPING THRESHOLD
Stuart Samuel, analyst with IGD, said the bigger news by Wal-Mart this week was the fact that it’s tweaking the terms of its free shipping service for online orders.

Wal-Mart said it will reduce the minimum order that qualifies for free shipping from $50 to $35. Samuel said this should help Wal-Mart to grow e-commerce sales, in part because Target noted a strong response from it shopper when it lowered its free shipping threshold to $25.

Other experts say lowering the threshold on free shipping may not make a difference to millions of U.S. consumers – namely Amazon Prime members. Prime members in the U.S. likely number between 30 million and 40 million, according to RBC analysts. This group ranges from tech savvy millenials to quick-study boomers who have come to appreciate the convenience of two-day home delivery.

Samuel said this has made product shipping a key battleground among retailers. Amazon has already built a loyalty program around its Prime membership which costs $99 annually with millions of U.S. shoppers. 

Annibal Sodero, supply chain professor at the University of Arkansas, recently told The City Wire that such loyalty is not easy for a retailer to replicate, even if it is Wal-Mart trying to follow Amazon’s lead. He said Prime members think Amazon first because they have been programed to do so. He said because they pay a fee and their expectations have been met or exceeded, the loyalty bond has sealed. Other retailers can lower their online shipping charges to $0 but that may not be enough to entice Amazon Prime members away.

Samuel also noted that Amazon Prime members are among the most loyal shopping group today, spending twice as much as regular shoppers.