Written by ANNE D'INNOCENZIO AP Retail Writer
(AP) — Walmart is rolling out free next-day delivery on its most popular items, increasing the stakes in the retail shipping wars with Amazon.
The nation’s largest retailer said Tuesday it’s been building a network of more efficient e-commerce distribution centers to make that happen. The next-day service will cover 220,000 popular items from diapers and non-perishable food items to toys and electronics. That’s nearly double the number of items it carries in its stores.
Next-day delivery, which will require a minimum order of $35, will be available in Phoenix, Arizona, and Las Vegas on Tuesday. In coming days, it will expand to southern California. The discounter plans to roll out the service to 75% of the U.S. population by year-end. It will also be adding hundreds of thousands more products as the program expands.
The announcement comes just two weeks after online behemoth Amazon said it’s upgrading its free shipping option to Prime members who pay $119 a year to one-day delivery from two-day delivery. Amazon has declined to say when the switch will happen, but it already offers one-day delivery for some items in certain areas.
Walmart says the new delivery program has been in the works for a while.
“Customer expectations continue to rise,” said Marc Lore, CEO of Walmart’s U.S. e-commerce division, told The Associated Press in a phone interview. “We’re trying to get ahead of that.”
The move will only increase pressure on other rivals that are already investing in millions of dollars to shorten the delivery window.
Amazon changed consumer expectations when it launched its two-day delivery for Prime members back in 2005 and forced other retailers to step up their game. But analysts say Amazon then needed to cut the delivery time in half to make its membership more attractive since others like Walmart offered free two-day deliveries without any membership.
Two years ago, Walmart began offering free two-day shipping on millions of items on its website for orders of at least $35. Target also offers free two-day shipping for those who spend at least $35 or use its RedCard loyalty card. Walmart has also been expanding same-day grocery delivery service fulfilled from its stores for a fee of about $10.
Lore says it will be cheaper for the company to do next-day delivery versus two-day service because eligible items will come from a single fulfillment center located closest to the customer. This means orders will ship in one box, or in as few as possible, unlike two-day deliveries that come in multiple boxes from multiple locations. Walmart is also trying to limit costs by tailoring products based on what shoppers demand in the local markets. For example, sunscreen would be available all year for areas like Southern California and Phoenix.
Still, Walmart sells far fewer products than Amazon and its online U.S. sales are only a fraction of Amazon’s online global merchandise empire. Jason Goldberg, chief commerce strategy officer of Publicis Communications, noted Walmart isn’t going to be able to ship the same number of products as Amazon under one-day shipping and its profit margins could get further squeezed as it focuses on the most popular items that would be subject to pricing wars.
Amazon has also been delivering more packages itself rather than relying on the post office and other carriers like UPS and FedEx. The company expects to spend $800 million in the second quarter to speed up deliveries and has expanded its fleet of jets. On Monday, it announced that it will be expanding an incentive program to its employees so they can quit their jobs and start their own Amazon package delivery businesses.
Walmart has one big advantage over Amazon — its more than 4,700 stores.
Walmart and Target have been turning their physical stores into shipping hubs, speeding up deliveries and helping to defray costs for services like curbside delivery and in-store pickup. Walmart has also been expanding the use of robots in its stores, which keep tabs on what’s on and not on the shelves. Meanwhile, Target has redesigned its staging area for packages to help speed up fulfilling curbside deliveries.