It appears that a summer battle between Amazon and Walmart is on the horizon, with both retail giants offering discount promotions akin to annual Black Friday sales.
While Amazon recently introduced Prime Day to offer deals for its Prime members on July 15, Walmart also has thrown its hat in the ring to launch an online sale of its own on the same day. The sale is expected to include more than 2,000 online exclusive “rollback” discounts, which will be offered for 90 days according to USA Today. As part of the sale, Walmart has lowered its free shipping minimums from $50 to $35 for at least 30 days.
Unlike Amazon, Walmart is gearing its online sale to its entire consumer base. Fernando Madeira, President and CEO of Walmart.com, emphasized this sentiment in a blog post, which appears to take a shot at Prime Day.
“We’ve heard some retailers are charging $100 to get access to a sale,” Madeira wrote. “But the idea of asking customers to pay extra in order to save money just doesn’t add up for us.”
A subscription to Amazon Prime costs $99 per year, and includes free two-day shipping and access to video streaming and music. Madeira indicated that the Walmart sale will include special “atomic deals” on top of the traditional rollbacks, but he did not specify the details surroundings the deals.
Despite Madeira’s statement, Walmart is piloting its own service similar to Prime, known as ShippingPass, which would cost $50 per year for unlimited three-day free shipping. Although ShippingPass is presently in its testing phase, the full version is expected to launch later this summer.
“This competition could signal a faster race to the bottom this holiday season, but I think Amazon is on to something in terms of cultivating loyalty with Prime,” said Arie Shpanya, CEO and Co-Founder of Wiser in a discussion on RetailWire. “If Amazon and Walmart both have the same prices on items and will both deliver them quickly and for free, there’s still going to be something that makes shoppers choose one retailer over the other. Developing and improving that ‘something’ has to be the focus for Amazon, Walmart, and any other retailer that wants to keep up.”
Not long after the blog post went public, Amazon Prime VP Greg Greeley released a statement, both defending Prime Day and pointing out the inconsistencies in competitors’ pricing models.
“We’ve heard some retailers are charging higher prices for items in their physical stores than they do for the same items online,” Greeley stated. “The idea of charging your in-store customers more than your online customers doesn’t add up for us, but it’s a good reminder that you’re usually better off shopping online.”
Is Walmart Willing To Sacrifice Profits?
Walmart’s jump into the July sales fray makes it appear that the retailer is taking major strides to play catchup in the e-Commerce space. In trying to close the gap, Walmart is taking the risk of increasing e-Commerce spending in the goal to boost profits. Unlike Walmart, Amazon’s business model hasn’t traditionally thrived on earning profits, making it much easier for the company to make risky investments into new territories.
“When I look at the fact that Amazon doesn’t show a lot of profits, I see that more as a way that they use the cash flow generated by retail to fund other efforts,” said David Mitchell Smith, a VP and Gartner Fellow at Gartner. “Amazon likes to foray into some areas that might be considered a little bit out of its core, such as drones, the Fire Phone and even Amazon Web Services from its beginnings. A lot of the ability for the company to fund those things comes from not showing profits, rather plowing those would-be profits into the business.”
Walmart doesn’t quite have this luxury, with the company missing Q1 Wall Street profit forecasts after increasing e-Commerce investments and raising minimum wage for its workers to $9/hr. Additionally, reports surfaced that the retailer expects to cut as many as 1,000 corporate headquarter jobs across its Walmart and Sam’s Club divisions by November 1, 2015.
Summer Sales Are Nothing New
The battle for sales supremacy in July isn’t exclusive to Walmart and Amazon, nor is it a new concept. For example, Target held its “Black Friday in July” event on July 13, and has offered the day-long sale since 2010. Best Buy also is holding its Black Friday-themed sale on July 24-25, marking the third year it has hosted a Black Friday midsummer event.
“Retailers have long had attempts to try to drive business in the summer doldrums,” Smith said in an interview with Retail Touchpoints. “There have been no shortage of these types of promotions carried out over the years.”
What these concepts may lack in innovation, they may make up for in hype. A typical Black Friday sale is likely to offer savings on different merchandise than a sale marketed during the summer months, providing a value that differs just enough from winter sales to make an impact.
“If you go to Target right now, are you going to buy a Christmas gift?,” said Kathy Grannis Allen, Senior Director of Media Relations for the National Retail Federation, in an interview with USA Today. “Probably not. The words resonate as deep discounts and a day to get great deals on an assortment of products.”
On the other hand, the promotions put heavy pressure on the retailers to make sales they otherwise wouldn’t have to prepare for. In an environment focused on reeling customers in and retaining loyalty, both Amazon and Walmart are tasked with ensuring that these promotions continue to mean something to shoppers.
“The major significance of this unfolding online war is that online can quickly create events at any time of the year,” said Chris Peterson, President of Integrated Marketing Solutions in a post on RetailWire. “Merchandising stores for such an event takes a very long lead time, with the risk of a lot of leftover inventory if it doesn’t sell through.”