Can Walmart's New Subscription Plan Beat Amazon Prime?

Walmart Inc. WMT has clearly taken its game with Amazon.com, Inc. AMZN to another level with the launch of its new subscription service Walmart+ later in July. The service will allow customers to get their groceries and other essential products delivered to the doorstep.

Walmart+ Aims at More Business Through Perks

Walmart’s new service is designed to compete with Amazon Prime, which offers customers a string of benefits under one banner. After all, with the rise in demand for online shopping and doorstep delivery since coronavirus hit earlier this year, Walmart’s new venture is not unexpected.

Walmart, which carries a Zacks Rank #3 (Hold), has witnessed record sales since the pandemic spread its tentacles throughout the United States. The retail giant has one of the easiest grocery pickup systems in the country, which definitely makes it smoother to roll out the new subscription-based service. However, whether the service will be launched nationally or regionally later this month is unknown.

According to Recode, the new service is definitely priced cheaper at $98 a year, with perks such as unlimited same-day delivery of groceries and general merchandise from Walmart Supercenters, reserved delivery slots and open-slot notifications, discounts on fuel at Walmart gas stations, access to Walmart’s new Express two-hour delivery offering and early access to product deals.

Armed with the aforementioned offers, Walmart+ appears as an assured service awaiting its launch.

After all, the company is counting on the rapid shift to online shopping and panic-buying by a large portion of American households because of the pandemic. Panic-buying, in particular, boosted Walmart’s sales over the past few months as customers hoarded food and essential products.

In-store sales at Walmart skyrocketed in March and the company went into a hiring spree to cope with the large volume of orders. According to the Wall Street Journal, Walmart store sales rose 20% for much of the said month over March 2019 as footfall at to non-grocery retail stores dropped more than 97% during the last two weeks of March.

The outcome is evident in Walmart’s first-quarter 2020 earnings report. The company reported quarterly earnings of $1.18 per share, beating the Zacks Consensus Estimate of $1.10. In addition, the company’s revenues of $134.62 billion for the quarter ended April 2020 also surpassed the Zacks Consensus Estimate by 0.50%.

Considering the company’s strong performance so far, especially throughout the pandemic, it appears that Walmart+ holds promise.

Walmart has an expected earnings growth rate of 9.7% for next year. Shares of the company, which belongs to the Zacks Retail - Supermarkets industry, have gained 42.7% over the past two years compared to the industry’s growth of 40.6% during the same period.

Amazon Prime’s Dominance in Retail Could Be Hard to Beat

Since Walmart+ plans to woo over Amazon Prime’s customer pool, it is imperative to consider what Amazon Prime offers that ought to give the former a hard time.

Taking a look at pricing, Amazon Prime’s subscription service is definitely costlier than Walmart+ at $119 annually. In addition, the service has been around for more than a decade, having launched in 2005.

Amazon Prime, as a service, connects and offers services from Amazon’s other areas of business apart from grocery and general merchandise. For example, apart from same-day and next-day delivery of products, Amazon Prime allows its customers to access Prime Video, which is the company’s streaming media service, exclusive shopping deals and free access to Prime Reading’s library of more than a thousand e-books and magazines.

The pandemic boosted Amazon Prime’s operations hugely, as online orders surged. Amazon has hired as many as 175,000 people since the virus outbreak, increasing its capacity by more than 60%. This has ultimately boosted the number of Prime memberships as well, especially during the pandemic.

Prime subscription revenues climbed as much as 28% in first-quarter 2020 from a year ago and subscription sales, which comprise Amazon Prime memberships, have grown to $5.6 billion during the quarter. A major reason behind Amazon Prime’s growing popularity is its consistent services and additional perks besides shopping. Walmart+, thus, could take a while to catch up.

Amazon has an expected earnings growth rate of 92.1% for next year. Shares of the company, which belongs to the Zacks Internet - Commerce industry, have gained 76.8% over the past two years compared to the industry’s growth of 27.5% during the same period.Amazon carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

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