World Class Faculty & Research / May 19, 2016

Walmart Counters Amazon With Its Own 'Prime' Service

SMITH BRAIN TRUST — Amazon may be synonymous with online shopping and fast shipping, but Walmart isn't ceding the e-commerce field to its hipper rival. Walmart announced last week that it was ramping up its efforts to counter Amazon's very successful Amazon Prime program — for $99 a year, Amazon offers free two-day shipping and a host of other benefits, including free online movies. Walmart is spending some $2 billion to improve its own ShippingPass program. At $49 a year, the existing program undercuts Amazon on price but has, until now, offered free three-day shipping. Now it will be two days.

In this new effort, Walmart will house more of its inventory in eight e-commerce distribution centers. It will leverage its fleet of 6,000 tractor trailers — among the largest private truck fleets in the country — and turn to local deliverers for "last mile" service. (Earlier this year, Walmart closed 150 stores and said it would redirect the resources to e-commerce.)

Noting that Amazon is building stores even as Walmart is becoming more robust online, Philip T. Evers, an associate professor of logistics, business and public policy at the University of Maryland's Robert H. Smith School of Business, says Walmart's gambit highlights how large retailers must increasingly take an "omnichannel" approach. "Amazon comes from the online side, Walmart from the brick-and-mortar front. Now they increasingly are competing in the same, blurred space," Evers says.

He notes that Walmart's logistical prowess was a key to its rise to retailing pre-eminence, helping it to outmaneuver rivals like Kmart.  So we shouldn't be surprised that Walmart thinks it can match Jeff Bezos on this score.  

To be sure, Amazon is a moving target. Even as Walmart tries to master two-day shipping, Amazon is offering same-day service in selected cities. But Evers says that Walmart's physical stores could be a powerful resource as customers come to expect ever-faster shipping times. "It may be that Walmart relies on distribution centers at first," he says. "But if they wanted to provide same-day delivery to a customer, Walmart may have an easier time than Amazon, because Walmart has an existing network of neighborhood stores."



"It seems to me that when you forward-position stock at stores, as brick-and-mortar retailers have traditionally done, you could respond much faster to customer orders," Evers said. "The order comes in, dedicated personnel pick the orders off the store shelf, a local package delivery service is called, and it's at your door in an hour." For home deliveries, the company may end up relying upon transportation providers that offer Uber-like service for freight.

Indeed, as Walmart deliveries increase, companies might arise simply to shuttle merchandise from Walmart stores to homes. Currently Amazon makes about seven times the shipments of its rival, which portends significant growth potential for Walmart if it can match Amazon on speed.

Overall, the moves and countermoves by these two behemoths — in December, Amazon announced it was acquiring a fleet of planes — demonstrate "just how much dynamism there is in the retail space," Evers says.

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About the University of Maryland's Robert H. Smith School of Business

The Robert H. Smith School of Business is an internationally recognized leader in management education and research. One of 12 colleges and schools at the University of Maryland, College Park, the Smith School offers undergraduate, full-time and flex MBA, executive MBA, online MBA, business master’s, PhD and executive education programs, as well as outreach services to the corporate community. The school offers its degree, custom and certification programs in learning locations in North America and Asia.

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