Walmart’s stock gets a $24 billion boost after retailer announces subscription service

Walmart + Scan and Go

Source: Walmart

Walmart+ won’t launch for two weeks, but Wall Street is reacting positively to the retailer’s forthcoming membership program and its perks. Now, investors and industry watchers will wait to see if customers sign up.

The company’s shares closed up more than 6% on Tuesday.  Earlier in the day Walmart’s stock hit a new 52-week high. Its market cap rose to $418 billion.

Walmart said Tuesday that the subscription service will debut nationwide Sept. 15. It will cost $98 a year or $12.95 a month. Walmart+ members will get unlimited free home delivery of more than 160,000 items sold in stores, including groceries, so long as they spend at least $35 per order. They will also get discounts of up to 5 cents a gallon for fuel and access to a Scan & Go app that allows shoppers to skip the checkout line.

Walmart’s chief customer officer, Janey Whiteside, downplayed its intent to compete with Amazon Prime and described the service as a “life hack” that makes shopping easy and saves families money. She said the company will keep adding benefits.

Yet consumers will likely compare Walmart+ and Amazon Prime as they debate whether they want to pay for one program or the other — or decide if they can afford both. Whether Walmart shoppers embrace the service or not could influence if the big-box retailer can keep its sales soaring and wallet share expanding like it has during the coronavirus pandemic

“Walmart has undoubtedly picked up new customers during this across categories,” Moody’s retail analyst Charlie O’Shea said. “How many of those customers stay?”

The retailer’s subscription service is a sharp departure from Amazon Prime. That rival service costs slightly more at $119 a year or $12.99 a month, but it includes a large library of TV shows and movies. It also allows customers to order a single low-priced item, such as a lightbulb or a toothbrush, and ship it to their home without needing to hit a minimum.

‘Apples and watermelons’

One of the key advantages for Walmart+ members will be fee-free delivery of groceries and other merchandise to their door. Other customers will have to pay $7.95 or $9.95 per delivery, depending on the time slot.

O’Shea said comparing the two membership programs is like “apples and watermelons.” Amazon Prime has used its speedy and free shipping on everything and its “incredible content universe” to make its service sticky.

He said Walmart, on the other hand, is leaning on its grocery business and its footprint of more than 4,700 stores by waiving fees for deliveries that are as fast as same day.

“When you start talking about same-day availability, Amazon’s proven it’s really hard to do without a store base — and Walmart has that store base,” he said. “For a big chunk of the Walmart base, maybe the delivery is more compelling than the content.”

O’Shea said he expects the retailer to keep tinkering and sees the current benefits as a starting point.

Walmart+ will debut as the retailer navigates a complex economic backdrop. Walmart’s same-store sales in the U.S. grew by 9.3% in the second quarter. Its e-commerce sales in the U.S. nearly doubled in the quarter. The retailer profited from being the country’s largest grocer, as people cook more during the pandemic. 

Yet for the company’s value-conscious and sometimes cash-strapped customers, another factor played a role, too. Chief Financial Officer Brett Biggs said Walmart shoppers spent more as they had extra money in their pocket from the government stimulus. That spending dropped off as those funds ran out and it’s unclear if Congress will approve a second check.

Possible TikTok deal

Walmart has another strategic move it’s juggling, too. It’s teamed up with Microsoft in a bidding war for the U.S. operations of viral video app TikTok. Beijing-based ByteDance, TikTok’s parent company, has picked a winner and could announce them as soon as Tuesday, according to sources familiar with the matter.

Amazon Prime has grown to more than 150 million members globally, the company said in January. It had an estimated 65 million to 70 million U.S. members before the pandemic, according to Moody’s Investors Service.

Walmart+ will only be available in the U.S. Members of Delivery Unlimited, a flat-rate grocery delivery subscription service, will automatically become part of the new program. Walmart has not disclosed how many members Delivery Unlimited has.

During the pandemic, consumers’ habits have changed, too. That’s something that Walmart+ is seizing upon with benefits that allow members to skip trips to the store or if they go, check out items through an app instead of standing in a line and interacting with cashiers.

Over a third of U.S. consumers have shopped in stores or channels that they hadn’t before the pandemic, according to research by McKinsey & Company. Before the pandemic, online shopping made up about 2% or 3% of U.S. grocery sales. That surged to 15% and is expected to level off in the high single digits, said Vishwa Chandra, a partner who covers retail and grocery for the consulting firm.

New ways to shop

As customers tried out new ways to shop during the pandemic, they discovered different — and sometimes easier — ways to shop like getting bags of groceries dropped off on their doorstep.

If a retailer wants a subscription service or loyalty program to have staying power, he said they must personalize offers for customers, act upon the insights they glean and offer reasons for them to keep engaging with their brand

“You ultimately have to deliver value,” he said. “The value doesn’t necessarily only have to mean savings from a dollar and cents perspective. It can be convenience. It can be relevance.”

Harris Diamand, vice president of customer experience at 1WorldSync, a company that connects vendors to retailers like Walmart, said he sees two downsides of the program: Customers may dislike the $35 minimum, since they can’t get a one-off item. They may also want to order home deliveries of items from third-party vendors like they do through Amazon.

He said the threshold may be easy for customers to hit if they grocery shop, but said he “wouldn’t be surprised if that is removed in the future.”

Whiteside, for her part, said the vast majority of Walmart customers tend to buy at least $35 per order already.

Diamand said Walmart can keep sweetening the deal, like adding items from Walmart Marketplace or aspects of TikTok, if the acquisition goes through.

“This can open it up across the board for them,” he said.

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