Amazon’s free, one-day shipping puts the pressure on Walmart, Target

on Apr26
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A truck pulling an Amazon Prime branded cargo container waits beside the entrance gate at Amazon.com Inc.'s new fulfillment center in Kolbaskowo, Poland, on Friday, Feb. 16, 2018.

Bartek Sadowski | Bloomberg | Getty Images

A truck pulling an Amazon Prime branded cargo container waits beside the entrance gate at Amazon.com Inc.’s new fulfillment center in Kolbaskowo, Poland, on Friday, Feb. 16, 2018.

While Walmart and Target don’t break out for Wall Street how much money they spend on shipping and related expenses each year, we know those costs have eaten into profit margins and continue to do so. And investors have punished Walmart and Target, at least in the near term, for having to spend more money to compete.

Walmart in January 2017 started offering free two-day shipping on orders totaling more than $35, dropping its minimum purchase threshold, which had been $50 up until then. And it bought Jet.com for $3 billion in 2016 as another bid to juice its online business and compete with Amazon, but also to be able to reach shoppers in bigger cities in a faster window of time.

Target, meanwhile, in March 2018 made free two-day shipping available for all of its credit card holders, with no minimum purchase requirement. For all other Target shoppers, two-day shipping comes free with a minimum online order of $35. The company had lowered its purchase threshold to $25 from $50 in 2015, but raised it back to $35 in 2017. And on the acquisition front, Target acquired same-day delivery platform Shipt for $550 million in 2017, allowing it to get to customers in bigger cities like New York in under 24 hours.

“While margins have been pressured … now [Walmart and Target] have a much more sophisticated supply chain,” Stacey Widlitz, president of SW Retail Advisors, said. “It’s been paying off,” because same-store sales have continued to climb at these retailers, she said. “The real issue is when you get to the holidays. … That’s when people will be saying, ‘Oh my God, I need this same day or in one day.'”

To be sure, Walmart, Target and many of Amazon’s other rivals like Best Buy, Kohl’s and Home Depot are increasingly touting their buy online, pick up in store options. And that’s something Amazon hasn’t been able to match at scale, without a far-reaching network of bricks-and-mortar locations like these other companies.

There’s evidence more and more shoppers are turning to this option, too.

Target this past holiday season said the amount of online orders it fulfilled through either in-store pickup or its curbside pickup service was up 60% from a year ago and accounted for roughly 25% of online sales during November and December.

A recent, April survey from Coresight Research found 46% of online shoppers in the U.S. had collected at least one of their online orders from a bricks-and-mortar store within the past 12 months. Coresight said Walmart and Target are the two most popular U.S. retailers for buying online and picking up in store, followed by Best Buy and Home Depot.

— CNBC’s
Courtney Reagan
contributed to this reporting.



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