business news in context, analysis with attitude

Walmart last week announced the launch later this month of Walmart+, which Re/code describes as "its own membership program that it hopes will eventually become an alternative to Amazon Prime … It will include perks like same-day delivery of groceries and general merchandise, discounts on fuel at Walmart gas stations, and early access to product deals."

The program was originally planned to be rolled out a few months ago, but the pandemic pushed back Walmart's plans.

Some more context from the Re/code story:

"When Walmart+ launches, the $98 annual membership is expected to include unlimited same-day delivery of groceries and other goods from Walmart Supercenters, reserved delivery slots and open-slot notifications, as well as some access to Walmart’s new Express two-hour delivery offering, though not unlimited usage. During the pandemic, customers have run into issues securing grocery delivery slots in some parts of the country as companies like Walmart and Amazon struggled to handle drastic increases in demand for online grocery services.

"Walmart+ perks are also expected to include discounts on fuel at Walmart gas stations, early access to some product deals, and a Scan & Go service that would allow shoppers to check out in Walmart stores without waiting in line — a tool Walmart briefly tested but discontinued nearly two years ago. A Walmart+-branded credit card will also be introduced at some point after launch.

"Walmart also has plans to add video entertainment components to the program, though the details of this remain unclear."

Re/code writes that "launched in 2005, Amazon Prime has become a loyalty program that now boasts more than 150 million members globally and sports a portfolio of perks, including express delivery of groceries and other items, access to a large catalog of TV shows and movies, as well as exclusive discounts at Whole Foods stores. Amazon Prime members, who pay $119 annually in the US, shop more frequently and spend more on Amazon than non-Prime members do. They also do price comparisons less across competitor sites."

One of the challenges for Walmart, Re/code notes, " is the fact that more than half of its top-spending families now have Amazon Prime memberships … It’s a trend that has been several years in the making, as Amazon has made moves for Prime to appeal to households with less disposable income that historically have favored shopping at Walmart."

KC's View:

The best commentary I've seen on this move is from Scott Galloway, who describes the Walmart+ initiative as an attempt to counterpunch in a way that creates a fundamental shift in how business is done.

Writing for Business Insider, Galloway lays it out this way:

"The most accretive action taken by any $10 billion or larger business is to move from a transactional model to recurring revenue. This exploits one of the fundamental flaws of our species, the inability to register time. Time flies — it goes faster than our estimated consumption of a product during a given time period. Only 18% of gym members go to the gym consistently. 

In addition, the markets are a reflection of ourselves, and humans hate uncertainty. Waking up next to a stranger is exciting in the short run but exhausting in the long (see above: recurring revenue). Walmart interacts with American families transactionally, while Amazon lives in 82% of their homes. That could begin to shift with Walmart+."

As someone who long has advocated for subscription and auto-replenishment services that allow retailers to effectively compete with Amazon's Subscribe & Save, I totally agree with this … though the keyword in Galloway's analysis is "could."  Saying it and doing it are different things.

But … retailers that compete with Walmart and Amazon have to realize that every subscription is not just a single sale they did not get, but potentially a lifetime of sales of whatever that item is that no longer will take place in their stores.  Every subscription is a brick in a wall that serves to keep the shopper inside an ecosystem being constructed by Amazon and Walmart, and opposing retailers outside.

And outside the ecosystem is a dangerous place to be.

This won't all happen overnight, nor will it affect every category.  But it is a long-term strategy that has potentially devastating implications for many retailers and many segments of their businesses.