Traditional brick-and-mortar retailers face a crossroads as they try to compete with Amazon.com. Ever since its introduction in 2005, Amazon Prime has been the Cadillac of delivery services for the e-commerce giant's customers. Wal-Mart is considering a competing plan that offers free delivery at half of the price of Amazon.com's annual membership.
Wal-Mart's plan is called ShippingPass, which costs $49 per year compared to $99 for Amazon Prime. Perhaps Amazon.com spoiled its customers with fast, free delivery on many items consumers can purchase through the retail giant. All someone has to do is point, click and buy, and then two days later, items arrive at the front door. Wal-Mart's low prices may not have been enough to keep up with Amazon.com's juggernaut.
The beauty of such as system occurs when consumers buy enough items to pay for the shipping over time. Ground shipping might be free in some instances, but that could take five to seven business days. If two-day shipping costs an extra $5 per purchase, all it takes is 10 purchases in one year for Wal-Mart's system to pay for itself. While it's not free delivery, the yearly subscription removes any shipping charges from each individual purchase.
This business model works on expediency. When a shopper buys a large bottle of laundry detergent in just one minute through a smartphone, that item arrives within two days. Suddenly, the consumer doesn't have to spend the extra time it takes to drive to a store, wait in line at the register and walk through shelves full of items. The time saved, plus the money saved with free delivery, makes this way of doing business worthwhile for those who love convenience.
If Wal-Mart can put as many of its in-store items on the ShippingPass plan, it might have a case to compete with Amazon's physical retail presence. However, Prime subscribers also have access to free video streaming and free e-books on the Amazon Kindle. Wal-Mart has never been on the competitive edge when it comes to video streaming or e-books — it specializes in physical items consumers can buy in a store. Instead of lugging around that 52-inch television or the computer desk through a huge Wal-Mart Supercenter, consumers could get these big-ticket items delivered to their front door.
ShippingPass gives buyers the illusion of free delivery combined with fast service to produce a business model that caters to consumers who get to shop for what they want and when they want it. The success or failure of Wal-Mart's program may serve as a the way forward for other brick-and-mortar stores seeking to remain relevant in a connected consumer world.
Fast and free delivery for a yearly subscription fee is here to stay based on the success of Amazon.com's service. If consumers continue to drive this facet of retail shopping, traditional stores have no choice but to cater to their whims, or they stand to lose sales, revenue and profits.
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