Walmart is not visionary but it knows how to counterpunch

It's telling that since it launched Walmart+ in September, Walmart hasn’t shared the number of customers who have joined. Even on the last earnings conference call in November, executives repeatedly dodged questions from analysts about the number of sign-ups. Most likely the numbers are disappointing or at least not where Walmart's executives would like them to be.

Walmart+ is their response to Amazon Prime. So when Walmart+ launched, Walmart offered it at a discount to Prime. Amazon Prime costs $119 a year. Walmart+ costs $98 a year with the caveat that free shipping is available on orders greater than $35. Typical Walmart. It figured if it bests the competitor (Amazon in this case) on price then customers will flock to Walmart+. However,  what the biggest discounter in the world missed is that customers - especially Prime customers - value speed and convenience the most. Prime's most popular feature is its free and fast deliveries, even for items as cheap as a toothbrush or lightbulb.

So three months after launch and after likely disappointing sign-up numbers, Walmart finally realized that it's difficult to operate any membership program involving free fulfillment outside the specter of Amazon's Prime program. So it scrapped its $35 online shipping minimum for Walmart+ members.

Finally Walmart realized that to best Amazon, it needs to compete on both price and speed. This should have been very evident from the get-go and Walmart has the resources to do it. Walmart has a massive footprint of more than 4,700 stores to help expedite the fulfillment of orders and more than 90% of Americans live within 10 miles of one of the company’s stores. Walmart should have flexed its store fleet from the beginning in its bid to compete with Amazon for super fast online deliveries. So why did Walmart not do this when Walmart+ launched?

It expected Walmart+ to be profitable and with very healthy margins when it launched. It wanted to ensure that Walmart+ it does not lose money even on small orders so it put the $35 minimum. Walmart management's only goal is to protect Walmart's bottom line. So Walmart+ is a defensive move rather an offensive move to compete with Amazon and grow business. Walmart's management thinking is very short term and it's focused on generating the biggest profit for the minimum investment in the short term. By contrast Amazon's thinking is long term and Amazon is focused on building the biggest insurmountable competitive advantage long term regardless of the investment/costs short term. Amazon is visionary. Walmart, on the other hand, is not so bright.

Am I invested in Walmart? In the short term, I am. This is because there is opportunity for Walmart+ to grow now that Walmart is finally flexing its store footprint. If Walmart+ becomes a $5-10 billion division and grows (much) faster than the core business, it will enable Walmart to recast its business and register a greater multiple. Then in the short term, there is also the Covid vaccination. Lots of people will be going to Walmart, CVS and Walgreens to take their vaccines. I want to also give credit to Walmart's management; they got it wrong with Walmart+ at launch and within a quarter corrected direction. This is the thing with Walmart. You can't say much in terms of innovation, but it's very efficient and is great at counterpunching. It's great at borrowing from others, improving these services and discounting them.  

Disclaimer: This post is merely my own assessment and is not an investment recommendation. For professional advice, seek input from a licensed investment advisor.