Wal-Mart dumps its version of Amazon Prime for new path

By Anne D'Innocenzio, Associated Press

Tuesday, Jan. 31, 2017 | 12:44 p.m.

NEW YORK — Wal-Mart is replacing a program that offered free shipping but had an annual fee with one that has a lower free shipping threshold and faster delivery as it hopes to answer Amazon's powerful Prime membership success.

The retailer says it will reduce shipping time to two days on 2 million of its most popular items including essentials like diapers and pet food as well as hot toys and electronics. Wal-Mart's average shipping time has been three to five days. Starting Tuesday, it's also reducing the spending necessary for free shipping to $35 from $50.

Wal-Mart's ShippingPass, launched as a pilot program in the summer of 2015, was aimed at challenging Amazon Prime and had allowed members to buy more than a million items for free shipping at Walmart.com. Last year, it trimmed its shipping time to two days from three, and cut the annual fee by a dollar to $49. Bentonville, Arkansas-based Wal-Mart said it worked well, but the company concluded shoppers shouldn't have to pay a membership fee for free shipping.

The strategy shift is one of the first big moves by Walmart.com's CEO Mark Lore, who joined the company when Wal-Mart bought online retailer Jet.com last year. And it's an illustration of how Wal-Mart is trying to figure out a way to compete with Amazon and its dominant Prime plan.

But some analysts say the approach may not be sufficiently aggressive to compete with Amazon Prime. They believe Wal-Mart — which also has encouraged shoppers to collect their online orders from stores to avoid shipping costs — should get rid of any minimum required for free shipping.

"They should eliminate the threshold altogether, said Ken Perkins, president of research firm Retail Metrics LLC. "I know it's a difficult pill to swallow. But if you look at how things are going, click-and-pick is never going to be as popular as click-and-ship."

Amazon's membership program costs $99 a year, but includes services like streaming music and video that have created fierce loyalty. Analysts say Amazon Prime members buy more frequently and spend more money. Amazon doesn't disclose a Prime subscriber total, but it's estimated to be around 65 million. Wal-Mart wouldn't say how many ShippingPass subscribers it had, but all will receive a refund of their membership fee.

Lore declined to comment on Amazon, but said lower prices, a wider assortment of eligible goods and faster shipping alone can build loyalty. Lore promised more moves ahead to spur Wal-Mart's online business.

"Two-day, free shipping is table stakes," he said in a conference call Monday. "We've upped the ante. On a very fundamental level, we don't have to charge for membership. We can save customers both time and money."

Lore said he believes the new approach will dramatically increase sales. Wal-Mart's online sales had been slowing over the past two years, but notably accelerated during last year's third quarter. Wal-Mart reports fourth-quarter results next month.

Wal-Mart said purchases outside the 2 million most popular items will count toward free shipping, but won't get the faster delivery.