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Here’s Why Amazon Needs Retail Stores Right Now | The Motley Fool

At first glance, it doesn’t even seem to be a contest. Shares of e-commerce giant Amazon (NASDAQ:AMZN) have not only outperformed those of brick-and-mortar rival Walmart (NYSE:WMT) in recent years, but as of last month — according to numbers crunched by The New York Times — people now spend more at Amazon than at the more traditional retailer. The pandemic’s clearly been a boon for the online “everything store.”

However, if you think it’s just another clear sign that nothing can stand in the way of the Amazon juggernaut, you may be a bit premature in making that conclusion. Walmart has made a small dent in Amazon Prime’s reach by showing respectable growth of its own comparable subscription-based program, Walmart+.

The service may be steering some of Amazon’s current and prospective customers toward the store-centered company. And more of the same could be coming.

Image source: Getty Images.

32 million and counting

Take the following reported number with at least a small grain of salt, as Walmart has neither confirmed nor denied it. But Deutsche Bank‘s recent estimate that there are 32 million U.S. households subscribed to Walmart+ is probably in the right ballpark. For perspective, Amazon Prime boasts more than 200 million Prime subscribers, although that’s a worldwide figure.

It’s a solid start for Walmart’s subscription service that only launched a year ago, and it doesn’t even include access to a large library of digital entertainment content as Amazon Prime does. Rather, the key selling feature of Walmart+ is unlimited free deliveries of online orders fulfilled by nearby stores — sometimes the very same day — at a Prime-like price of $12.95 per month or $98 per year. It seems to be enough for some consumers, particularly with the offer sweetened by fuel discounts.

The appeal of Walmart+ in a market where Amazon Prime is also available is obvious: speed and convenience, with greater access to perishable foods. Amazon is able to make same-day deliveries in certain markets. But it can’t offer same-day or next-day deliveries of as many high-demand goods that Walmart can thanks to Walmart’s network of more than 5,000 U.S. stores as a means of fulfilling online orders.

A study commissioned by ACI Worldwide and PYMNTS.com quantifies the idea, indicating that ease and convenience are the top concerns for 76% of online grocery shoppers right now, topping risks related to COVID-19. COVID-19 was only a concern for 59% of the 2,342 adults surveyed. Notably, 94% of respondents said they will shop in-store at least some of the time. That’s a detail that gives Walmart a serious leg up on Amazon, which is not a major retailer of groceries or other consumer goods.

Tiptoeing onto Amazon’s turf

There are a couple of additional details buried deeper in Deutsche Bank’s survey results that cast a doubt on just how well Amazon will be able to attract and retain Prime subscribers, who are known to spend at least twice as much on the site as non-Prime consumers do.

One of these nuances is, 86% of Walmart+ subscribers say they’re also Prime members.

That makes sense on the surface. Serious online shoppers likely find paying for both similar services still ultimately pays for itself. Both retailers offer a lot of items, but neither offers everything a consumer may need. If money gets tight, though, consumers may narrow such services down to one. Given the swell of cheap on-demand/streaming services now available, Prime’s content library has never been easier or more affordable to give up.

A Walmart employee stands in an aisle and reaches for an item on the shelf of a store

Image source: Walmart.

The other noteworthy nuance of the survey’s results is the type of customers Walmart+ is attracting. These consumers tend to be at the upper end of the income range. Deutsche Bank says 33% of current Walmart+ members live in households earning in excess of $100,000 per year. Only 28% of Prime’s subscribers can say the same.

Simply put, Walmart is making inroads with a crowd that to date has almost exclusively been Amazon’s. Another nicety like access to on-demand content could accelerate this penetration.

Location, location, location

Last month The Wall Street Journal reported that Amazon is mulling the development of its own full-sized store network capable of selling goods like clothing, household goods, and consumer electronics. The company itself has neither confirmed nor denied the Journal‘s suggestion, which was based on comments from unnamed “people familiar with the matter.” But given the early apparent success of Walmart+, a larger store network that looks a bit like Walmart’s might be more of a must-do for Amazon than a want-to.

As it stands now, Amazon manages a few dozen convenience-type and grocery stores, several conventional bookstores, and even more so-called “4-star” stores that feature some of the website’s best-selling items. Don’t forget that Amazon is also now parent to Whole Foods Market, which is a chain of more than 500 North American conventional grocery stores.

That’s still nowhere near Walmart’s geographic reach, however. The big brick-and-mortar retailer’s got more than 5,000 stores doubling as mini-warehouses that it’s leveraging to meet consumers’ desire for a combination of speed, convenience, and local in-store shopping.

Moral of the story: Walmart won’t destroy Amazon, but it could certainly create a brisk headwind for the company.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.



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