Amazon vs. Walmart: Why it Matters to Small etailers

Whenever there are competing products and services, the customer often wins with lower prices, better service, and even free shipping. That is certainly the case in the battle between Amazon and Walmart. With Amazon’s purchase of Whole Foods, we can expect the consumer to benefit with their grocery purchases as well. The long term plan of course is to have Amazon drones deliver groceries to your door. Or for larger deliveries, Amazon’s self-driving delivery cars.

As Amazon targets Walmart’s grocery dominance, Walmart has been doing the same by ramping up its overall ecommerce push, having recently acquired apparel retailers Moosejaw and Modcloth. Last August, it paid $3 billion for consumer products retailer Jet.com. To compete with Amazon, Walmart has lowered its shipping prices to zero when you place an order for $25 or more, without the need for an annual prime subscription. Amazon followed suit and dropped its free shipping threshold to $25.

Amazon has been beating Walmart at it “everyday low-price guarantee”. Walmart responded by calling in the major consumer suppliers — from diapers to clothes to TVs — with an offer they couldn’t refuse: Either cut their wholesale prices by at least 15 percent off, or Walmart would limit their presence in stores and create its own branded products to compete with them. Amazon, never afraid to cut sales margins by increasing volume, has responded by selling even more CRaP, an inside Amazon acronym for “Can’t Realize a Profit” products.

We know this is good news for consumers, but how does it affect you? If Amazon Go takes off — and no one’s ever won betting against Amazon when it comes to retail innovation — 3.5 million cashiers in the US will end up on the unemployment line. What about the small online retailer? How can you compete when these two giants are giving away shipping and holding massive sales like Amazon Prime Day? (Amazon Prime Day is expected to happen again this year the second week of July – it has been quiet about the actual date to keep Walmart and other competitors guessing).

Amazon of course will win the largest part of the sales on Prime day. But Prime Day will be a big opportunity for all online retailers, if last year’s strong online shopping activity is any indication. DigitalCommerce360 compiled this advice from four sources:

  • Start your anti-Prime Day sales early, says John Landsman, director of strategy and analysis at eDataSource, a provider of email research and analysis. Remember that Amazon will start offering deals as soon as it announces Prime Day, making it effectively a week or more of sales. Retailers that organize their own sales events should promote them heavily well before Prime Day, including on the July 4 weekend. Be sure to send emails about a planned sales event to any consumer who recently abandoned a shopping cart on your site or who opened a marketing email but did not purchase.
  • Don’t over-discount, says Nathan Rigby, vice president of sales and marketing at One Click Retail, a provider of online retail analytics. While discounts of less than 25% don’t attract many eyeballs on Amazon Prime Day, anything over 60% is just giving away margin. The optimal discount percentage on Amazon Prime Day last year was 41%, he says.
  • Be ready to match prices where it makes sense, says Stefan Weitz executive vice president of technology services at Radial, a provider of fulfillment, customer service and fraud prevention services to online and multichannel retailers. As Amazon releases deals, decide whether it makes sense to respond with similar deals, or perhaps something a bit different, such as offering a 4-pack instead of a single item that Amazon is promoting. And when first-time visitors arrive at your website give them an incentive to enroll in email or become a social media follower, providing a way to turn those Prime Day bargain-hunters into future customers.
  • Have enough product in stock, especially if you are offering Prime Day deals on Amazon, says Erin McElwee, e-commerce conversion consultant at Blue Acorn, a consulting firm that specializes in e-commerce site development and optimization. Anticipate that Prime Day will drive a lot more traffic and make sure enough product is on hand to meet demand, she says.

As for competing with free shipping? I was at the Dallas Market this past week having this conversation with several online retailers. In February, FedEx said it had started a new service managing fulfillment for smaller retailers. The company can pack merchandise from up to 400 sellers in a distribution center in Indianapolis and, soon, a second facility in southern California, said Ryan Kelly, a senior vice president at FedEx Supply Chain. A technology platform will distribute inventory across different locations, allowing customers to reach 98% of Americans via two-day ground shipping.

Newer entrants include startups like ShipBob, which runs fulfillment centers in Los Angeles, Chicago and Brooklyn, and Red Stag Fulfillment, operating out of three facilities in Tennessee and Utah. These companies pool orders from hundreds of customers to negotiate lower shipping rates than the retailers could get on their own. If you can’t find such a service in your area, what about starting your own group specifically for the purposes of negotiating reduced shipping costs, much like AARP does with insurance? Or find a joint warehouse that can ship your goods under an umbrella shipping contract.

Here are some other ways to compete with free shipping:

  • Free in-store pickup
    When a customer chooses the in-store pickup option, she is essentially making an appointment to shop. You should take advantage of this by offering her complementary items at pick up time.
  • Flat Rate Shipping
    Letting customers pay one price for shipping helps online stores reduce costs while improving shoppers’ experiences. As the retailer, you decide the price, so you can set it as low as you wish. Flat-rate shipping can also help build customer goodwill, as it can lessen the perception that a retailer is nickel-and-diming customers through tiered delivery rates.
  • Membership plans that include free shipping

    With this approach, customers pay to be a member and receive free shipping as a perk—Amazon Prime and Overstock.com’s Club O Gold are notable examples. The annual fee subsidizes the cost of the free shipping and membership can increase store and brand loyalty.
  • Free shipping on orders over a certain amount

    You may not want to have your free shipping threshold as low as $25 like Amazon and Walmart, but giving your customers an incentive to purchase a minimum amount in order to get free shipping can increase your sales.

As a seller, you need to get creative to avoid falling prey in the Amazon-Walmart war. I’d love to hear how you are planning on remaining competitive in this environment.