Breakingviews: Walmart explores perks of being second best

Walmart is late to the hot new trend of subscription-based shopping, but that isn’t such a bad thing. In September, the U.S. retailer launched a membership model akin to Amazon.com’s Prime. Like Walt Disney’s streaming service, which is quickly catching up to Netflix, Walmart may have the advantage of being able to ride on a more innovative rival’s coattails.

The $432 billion company said on Tuesday that U.S. e-commerce sales for the three-month period ending Oct. 31 rose 79% year-over-year, as customers piled up on groceries and electronics. Americans also spent 24% more per transaction, on average. During the quarter, the company led by Doug McMillon launched Walmart Plus for $98 a year, cheaper than Amazon’s annual fee of $119. Customers receive unlimited free delivery when they spend $35 or more. They also get fuel discounts and fast-lane checkouts in the store.

Cowen analysts reckon that Walmart Plus has attracted some 10 million households in the two months or so since the rollout, representing more than $140 million in equity value. That makes it a minnow compared with Amazon, which boasts around 82 million Prime-using households, according to Morgan Stanley forecasts.

Walmart can turn this to its advantage. For one thing, Amazon has accustomed consumers to shelling out monthly fees for fringe benefits, and piling their shopping carts high enough to qualify for free delivery. Amazon has also opened the eyes of investors who appreciate the value in the service, too. In the last three months Walmart’s stock has increased 12% while the S&P 500 Index is up 7%.

Walmart is in a prime spot. While the pandemic has boosted e-commerce sales, its gigantic physical footprint allows it to offer curbside pickup. Amazon’s third-quarter shipping costs rose 57% year-over-year but Walmart’s equivalent costs ought to grow more slowly if it doesn’t need to ship everything to the customer’s door.

Disney is an example of why second needn’t mean second-best. The Magic Kingdom introduced Disney+ last November, 12 years after Netflix started streaming movies and TV series. Disney has amassed an impressive 73 million customers, more than a third of Netflix’s total. So long as customers are prepared to pay for more than one service, following the leader can be a smart strategy.

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