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Walmart's subscription service needs better perks to compete with Amazon Prime

If Walmart Inc. wants its new subscription service to seriously compete with Amazon.com Inc.'s Prime program, the big-box retailer needs to offer more perks to consumers such as video streaming services and special discounts on exclusive products, retail experts said.

The Bentonville, Ark.-based retailer rolled out its Walmart+ program Sept. 15 right as its e-commerce sales are soaring due to the coronavirus pandemic. Walmart's second-quarter online sales jumped 97% .

For $98 a year, Walmart+ benefits include same-day delivery on orders of at least $35, a modest discount on fuel and access to Walmart's Scan & Go technology, allowing consumers to scan barcodes of items as they shop in stores and checkout via an app. The subscription service is considerably cheaper than Amazon Prime at $119 a year. Still, Prime offers a wider range of services, including its popular video streaming service featuring exclusive content and special deals at Whole Foods Market Inc.

Walmart needs to flesh out the subscription program with more perks to convince consumers to sign up, experts say. It should leverage its vast brick-and-mortar network to bring consumers into stores before the holidays, enhance current deals and add new services such as media content, experts say. Walmart has indicated that it plans to add new benefits to the service but did not return inquiries to S&P Global Market Intelligence about those additions.

"If they want to really encourage mass adoption, it's going to have to include more benefits," said Andrew Lipsman, principal analyst with eMarketer, in an interview. "Amazon has won on a combination of price, selection and convenience, and they've almost ruthlessly made sure that Amazon is best in class on all of those dimensions. People are very entrenched in that, and that is why [Walmart+] isn't going to change people's Prime buying behavior."

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Walmart should add new benefits to its subscription service, including exclusive deals to top brands not offered on Amazon's site, experts say.
Source: Walmart

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Perks push

Walmart is no stranger to loyalty initiatives, having experimented with its now-defunct membership-based personal shopping service Jetblack and a grocery delivery membership program that has essentially been rebranded as Walmart+. Walmart also offers memberships through its Sam's Club unit. But Walmart+ appears to target a broader audience of consumers, which makes it even more critical that it woo enough consumers to sign up.

For example, Walmart could offer a "doorbuster" deal of sorts before the holidays to drive consumers into its approximately 11,500 stores, Lipsman said. "It leverages the fact that they have stores that Amazon doesn't," he said. "That's something that would give it a bit of differentiation going into the holiday season."

Walmart+ could also offer special deals on products exclusive to Walmart. "All of the sudden, Walmart could have a marketplace that is fueled by a lot of brands that aren't on Amazon," Lipsman said.

Sucharita Kodali, vice president and principal analyst with Forrester, suggested that Walmart make its fuel offering more lucrative. Walmart+ now offers members a fuel savings of 5 cents per gallon at Walmart and Murphy stations. But the retailer might want to get more aggressive on discounting. If Walmart made it clear to consumers that they could save $100 on gas, "it's a no-brainer for a consumer to sign up for this program," she said.

Michael Baker, managing director and research analyst with D.A. Davidson, said the retailer could also tie in its in-home grocery delivery service in which the company places perishables directly into a consumer's refrigerator. "That's something that Walmart is already testing in a number of markets," Baker said. "A lot of people are fortunate enough to have a second refrigerator in their garage, so you don't even have to be home."

A big hole in Walmart's subscription service is the lack of a content or media offering, like Amazon's popular Prime Video feature, which is a "really amazing sweetener" for Prime members, Lipsman said. Walmart has dabbled in video streaming before with VUDU Inc., a video-on-demand service it is selling to NBCUniversal Media LLC's movie-ticketing unit Fandango Media LLC for an undisclosed price.

Zain Akbari, a Morningstar analyst, said that Vudu was part of Walmart's "feeling-out process on how to go up against Amazon," but the sale of Vudu and the announcement of Walmart+ suggests the company is choosing to focus more on its core merchandising strategy.

Walmart may be working to fill the content gap by pursuing a stake in Chinese video-sharing app TikTok Inc. Walmart and Oracle Corp. are planning to acquire a 20% stake in TikTok under an agreement with the U.S. government. Walmart did not return inquiries about the potential deal but has said investing in TikTok would help boost its advertising and third-party marketplace.

A potential deal is far from done but an investment in TikTok by Walmart could help the company boost its e-commerce business and online engagement, Baker said.

Prime habit

Walmart+ will face considerable competition.

Amazon's Prime program has amassed more than 150 million paying members, up from 95 million in June 2018, according to Statista. Amazon's net sales from subscription services that include revenue from Prime rose to $19.21 billion in 2019 from $6.39 billion in 2016. Net sales from subscription services reached $11.57 billion in the first half of 2020, compared to $9.02 billion in the first half of 2019.

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Amazon declined to comment for this story. But Amazon CFO Brian Olsavsky said on a second-quarter conference call July 30 that the company continued to see high Prime member engagement throughout the quarter. "Prime members shop more often with larger basket sizes," Olsavsky said, adding that "worldwide streaming video hours doubled year-over-year driven largely by Prime video."

Meanwhile, low-frills warehouse retailer Costco Wholesale Corp. has seen its membership cardholders grow to 105.5 million as of Aug. 30, up from 84 million in early 2016, according to S&P Capital IQ. The company's annual revenue from membership fees reached $3.54 billion in fiscal 2020 that ended Aug. 30, up from $2.53 billion in fiscal 2015. Costco memberships range between $60 and $120 and offer savings on items including gas, groceries, travel and rental cars.

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The appeal of Costco's programs comes down to customer access to very aggressively priced merchandise, said Morningstar's Akbari in an email message to Market Intelligence. As long as a Costco member buys enough goods from the retailer over the course of the year, the membership's annual cost is justified, he said.

But to justify an annual membership of Walmart+, budget-conscious consumers will likely have to do the bulk of their shopping at Walmart, especially for groceries, said Stacy DeBroff, founder and CEO of Influence Central, a social and digital consultancy that works with Fortune 500 brands. That may be unlikely given that consumers often shop at two or three different grocery stores regularly, she said in an interview. DeBroff added that Walmart shoppers also live within close proximity to Walmart stores, meaning they may want to opt for curbside pickup as opposed to delivery.

Not a zero-sum game

It is certainly possible that Amazon and Costco members may decide to add the Walmart+ program to their budget if it can provide a high enough value for their money, experts say. That decision will come down to an individual's specific needs, not cost alone.

"A lot of people have Amazon and Costco already, so there's precedent for having multiple membership programs," said Lipsman, of eMarketer. "Walmart to me sits somewhat in the middle of those two, especially given the gas benefit, which is a big one. A $100 membership spread out over thousands of dollars of purchases may be a very good value."

Kodali, of Forrester, concurred, adding that Walmart's program may provide additional benefits for households that spend on items offered through the program anyway. "Honestly, this is no different than the 15 credit cards that people have with all the points and the bonuses," she said.