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Amazon lowers free shipping threshold after Walmart’s sterling Q4 in ecommerce

Amazon has recently lowered its minimum order for free shipping to $35 — the same minimum Walmart instituted on free two-day shipping not three weeks ago, in a move that evinces Amazon’s acknowledgment of Walmart’s enterprising ecommerce tactics.

The slash comes one year after Amazon had raised its minimum shipping order to $49, no doubt to make its Prime service (which is competing with big-box retailers on one side, digital content outlets on another and grocery and convenience stores through Prime Pantry) more appetizing to consumers, who as a whole are tending to use Amazon more. It is almost certainly a reaction to Walmart’s own slash, after the company managed to speed sluggish growth in ecommerce in 2016.

“Walmart is giving Amazon a real run for its money; Amazon is paying attention, and this is a good thing,” said Wilson Kerr, vice president of business development at Unbound Commerce. “Unlike Amazon, they have 5,000 brick and mortar stores that can serve as ‘showrooms’ for their products, where product ordered online can be picked-up in hours, versus being delivered in days.

“They can leverage their supplier relationships to beat Amazon on price, while matching their free 2-day shipping convenience and benefitting from the reduced pricing benchmarks Amazon has set with the USPS and FedEx.”

Amazon vs. Walmart
The two retail giants have been all but squaring off in the past year, with Walmart’s unexpected ecommerce success in 2016 proving to severely gut into some of Amazon’s most profitable sectors. Despite overall growth in Q4 sales only growing one percent, Walmart’s fiscal report from the quarter is an important read to establish context for the growing competition: ecommerce growth at Walmart in the United States was strong as sales and GMV increased 29 percent and 36 percent, respectively, including Jet.com and online grocery.

And the similarity in the recent moves both companies have made in ecommerce show their willingness to compete. While Walmart is developing its online grocery infrastructure (and is even scaling mobile grocery ordering and delivery in China), Amazon is simultaneously scaling its AmazonFresh and Prime Pantry platforms to deliver essentials, offering a generous free shipping package to consumers in its early stages (see story).

A watershed moment for Walmart occurred when it purchased ecommerce player Jet.com for $3.3 billion last August, swallowing all of its ecommerce infrastructure and digital-savvy executives within it. One of the first high-profile moves new CEO of Walmart eCommerce U.S., Marc Lore — also founder and CEO of Jet.com — was to scrap Prime competitor product ShippingPass in favor of reducing the free shipping minimum purchase price to $35 from $50, and offer free shipping on an array of household products in a direct shot at Amazon (see story).

“Walmart has a lot of upside potential for online sales. Its online sales only represent about 3% of total sales, whereas the average retailers’ online sales are 8-10%,” said David Naumann, vice president of marketing at BRP. “Walmart realizes that they have a lot to do to catch up in the online space and they are making significant investments to bolster its online systems and product offerings.

“They spent about $900 million on digital in 2016 and the plan to invest another $1.1 billion in e-commerce this year. Most recently, they bought the outdoor gear seller Moosejaw for $51 million in an effort to expand its online product selections.”

Ecommerce giants
Whether Amazon’s price slash was the result of Walmart’s maneuvers in aggregate or a direct response to Walmart’s own slash earlier this month, it still technically offers an inferior shipping offering: non-Prime free shipping takes five to eight business days, compared with Walmart’s two. Perhaps that is all a part of the plan, as Amazon has made it clear that Prime uptake is one of its biggest priorities.

“For too long, there has been a giant ‘sucking sound’ in the retail space as Amazon steals marketshare while losing money,” Mr. Kerr said. “Walmart is a trusted name and, remember, Walmart is not a newbie to the ecommerce game.

“They smartly created their Walmart Labs in 2013 and located it in the heart of Silicon Valley,” he said. “They have been acquiring technology and talent ever since, and their mantra is to ‘redefine ecommerce globally.’

“Walmart, by hitting back at Amazon, can serves as a model for other large retailers — and the result might be greater choice and lower prices for online shoppers.”