Amazon’s cash blowing ways force competitors to lower prices, speed up delivery, and add programs with bells and whistles. But the company’s latest move is raising eyebrows.
For once, Amazon has moved from offense to defense. That’s because Walmart has emerged as a much more formidable opponent. Amazon has long been accustomed to dunking on Walmart again and again, offering a wider selection, a successful membership program, and more. But Walmart’s recent actions have proven that they’ve gotten into shape and are training to get into the finals with Amazon.
Here’s the scoreboard from the last year:
- February 2016: Amazon raises free 5-8 day shipping minimum from $35 to $49
- August 2016: Walmart acquires Jet.com
- January 2017: Walmart lowers free shipping from $50 to $35 and speeds up delivery from 3-5 days to 2 days (matching Jet.com’s policy)
- February 2017: Amazon quietly lowers its free shipping threshold for 5-8 day shipping from $49 to $35
Why is Amazon going back on its price increase? What’s been clear from watching Amazon over the years is that it will not be outdone. If the company has to bleed green, it’ll do it in a heartbeat in order to capture market share. But Amazon raised its free shipping threshold last year because it were simply bleeding itself dry and making profitability elusive.
Amazon also did it because it could. With millions of SKUs and attentive customer service, consumers would simply huff and puff and put a few more items in their cart—or even better, see the value and join Prime. Amazon was unlikely to lose market share, even though it was raising its threshold 40%.
It seemed that Amazon would maintain the upper hand in ecommerce. But then Walmart proved it came to play. In August 2016, Walmart announced it was buying Jet.com for $3.3 billion. For a newcomer to the ecommerce arena, this was a hefty price, but it showed Walmart’s hunger to rise in the ecommerce ranks.
Jet.com is the new golden child of ecommerce, offering 12 million SKUs in its first year. The company undercut Amazon with an ingenious bundling system that passed savings on to consumers who bought in bulk or purchased items that happened to be in the same warehouse. It’s possible that Jet will still give Amazon a run for its money, especially now that it’s under the umbrella of Walmart, which itself was perpetually playing catch-up with Amazon’s nimble and often surprising strategies.
Just five months after acquiring Jet.com, Walmart followed in the footsteps of its new crown jewel and dropped the shipping minimum to $35. Jet.com wasn’t the lowest price out there (with Target offering free shipping on orders over $25), but speed was the name of their game. Nowhere else online were consumers able to get access to millions of products in just two days with a $35 purchase. Amazon was in a bind, to say the least.
Not only was Amazon being beat on price, but on speed as well. So it followed suit on one front and dropped its free shipping minimum down to $35 to match Walmart. But are consumers willing to wait to get access to more products by shopping on Amazon? Before Jet.com joined Walmart, Fortune explained, it offered 10 million items, while Amazon tops out at 300 million. Walmart is on its way to posing a threat to Amazon, and Amazon’s reaction to the new shipping threshold shows that it’s keeping an eye on the competition.
Lowering shipping minimums is simply not in Amazon’s best interest. The company spent $16.2 billion last year on shipping, according to the Motley Fool, and in total, shipping cost $7.2 billion. And that’s with an increased minimum in effect for most of the year. Now that it’s lowered shipping costs, the company must have something up its sleeve to bring in additional revenue to make up for it. But with three Oscar wins and a futuristic grocery concept, Amazon is showing that its streams of revenue know no bounds.
What this means for other online retailers
If it wasn’t already scorching, ecommerce is about to heat up, and the quiet battle between Amazon and Walmart illuminates the main lessons for other online retailers:
- Assortment: Walmart acquired Jet.com for a number of reasons, but the sheer number of products it was able to sell in just one year was astronomical, eclipsing Walmart’s own offerings. But not every retailer is on Walmart’s scale. The lesson for other retailers is not about quantity, but about quality; what are competitors offering that you’re not? And also, what categories or verticals can you add unique products in to improve your offerings?
- Shipping cost and time: Let’s be frank: No shopper wants to pay for shipping, and they don’t want to wait weeks for their items to arrive if they can avoid it. Does that mean you need to drop your shipping cost to $35 or overnight every package to keep up? Not necessarily, but do consider what you can offer to get average order values up and make it clear that it’s worth it for shoppers to choose you.
- Price: Amazon and Walmart are often neck-and-neck when it comes to pricing. Always know how your prices stack up with competitors’ pricing. Once you gain that competitive intelligence, you can act on it with specific price changes or even a whole new strategy.
Amazon’s reaction to Walmart’s shipping price drop shows that it means business, and it’s clear that the competition between the two companies is taking off. While this contest plays out, there are still ways for behemoths-in-training to keep up and get ahead.
For more insight on where the retail industry is headed, see 10 Predictions On The Future Of Retail.Comments