It seems that Black Friday is earl this year thanks to Amazon's (NASDAQ:AMZN) Prime Day. Because major retailers do not want to miss out on this online shopping festival, Wal-Mart (NYSE:WMT) is looking to take on Amazon in its annual shopping day with its own online discounts on electronics, toys, household items, apparel and more. Where Wal-Mart differentiates from Amazon is that Wal-Mart is extending this discount to all shoppers whereas Amazon's sale is only available to its Prime members and that Wal-Mart is offering free shipping with no minimum purchase required.
Lower barriers to getting the discount plus free shipping are very attractive offers for online shoppers and there is a good chance that Amazon's Prime Day may not have that much of an impact because shoppers could scoop up competitive items on Wal-Mart's website. Essentially, Wal-Mart's move is designed to discourage potential Amazon Prime users from signing up to Prime since Wal-Mart is already offering a competitive discount plus free shipping without the hassle of signing up for a membership service that could potentially charge the user when they forget to discontinue. During the week, Wal-Mart will offer free shipping to over 1mn items on its website on top of the free shipping that is already offered by its sellers on Wal-Mart Marketplace. This is significant in that the maximum product scale could rival that of Amazon's Prime Day discount.
Where Wal-Mart can be a threat to Amazon? Extending discount for a longer time frame, increase the value of the products online and potentially adding Wal-Mart pay into the website.
Recall that last year, Wal-Mart responded Amazon's Prime Day with a three-month sales event, and I think that Wal-Mart could do something similar to lure consumers onto its website. While this may run the risk of waging an expensive price war with Amazon, I believe that such scenario would be short-lived as Amazon is likely to lose out given that Wal-Mart's omni-channel presence in both online and physical locations.
The quality of the discounted products is also important. Recall that the biggest criticism consumers had with the previous Prime Day was that it was an "online garage sale" in that most of the products were of lower quality. Wal-Mart could extend the level to discounts to all of its products and even a 10-15% discount on the higher quality products could make a difference if Amazon does not offer comparable discounts.
Finally, Wal-Mart could also incorporate Wal-Mart pay to its online shopping to encourage users to be part of its ecosystem. Wal-Mart is already competing against Apple in its physical stores and it makes sense to extend its payment service online to drive user loyalty, repeat sales and convenience.
What are the potential impact that Wal-Mart may have on Amazon? According to CIRP, Amazon added 19mn US members since the last Prime Day and currently has 63mn Prime members. Assuming that Wal-Mart prevents half of that members from signing up for Prime, that would be equivalent of a $940m loss in potential annual membership revenue for Amazon, and an additional $20.3bn in annual spending (assuming the 9.5mn members spend the average $2,147/year).
However, the combined $21bn lost to Amazon will not go to Wal-Mart in that Wal-Mart's discounts and free shipping is only available temporarily, but assume that half of that amount goes to Wal-Mart, that will still be an additional $10bn in revenue for the retail giant.
In conclusion, I think Wal-Mart has a real shot against Amazon but Amazon can also counter the retailers by scaling up its private label where it achieve higher margin and better product mix. In the long-term I continue to like Amazon because of the structural growth in ecommerce penetration.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.