Why Is Wal-Mart Scrapping Its Membership Shipping Program?
Wal-Mart (NYSE:WMT) is now providing free two-day shipping to all its customers on orders of $35 or more instead of charging a membership fee of $49 per year through its existing shipping program, ShippingPass. This comes as one of the first major changes since Wal-Mart purchased Jet.com last year. ((Wal-Mart offers free two-day shipping in latest attempt to compete with Amazon, Reuters, Jan 31 2017)) This appears to be a move to better compete with Amazon’s Prime service.
The e-commerce market in the U.S. continues to grow at a steady rate, as online orders accounted for 8.4% of total retail sales in Q3 2016, up from 7.4% in the comparable 2015 quarter. As online sales growth continues to outpace the total retail market, retailers need to focus on enhancing their online platforms to meet the increasing demand. With this move, Wal-Mart hopes to be accomplishing just that.
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Wal-Mart first started testing its ShippingPass program in May 2015 and also tried to boost its demand by offering a 30-day free trial in 2016. However, the program did not perform as well as the company expected, while Amazon Prime remains very popular among online shoppers. Prime has almost 65 million members in the U.S., according to Consumer Intelligence Research Partners. [1] Its renewal rates have been pegged at north of 90%. Prime charges $99 a year for two-day shipping on more than 30 million items, and also offers a number of additional features to the service as a way to keep customers on board. These services include Amazon Instant Video, streaming and unlimited photo storage. Accordingly, ShippingPass had a difficult time competing.
Wal-Mart plans to compete with Amazon by providing free shipping on orders of $35 or more to its value-conscious customers. Going forward, Wal-Mart aims to garner a greater share of total U.S. online sales, which are expected to reach $523 billion by 2020.
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Notes:- 20% of US residents belong to Amazon Prime, Internet Retailer, October 2016 [↩]