Walmart's upcoming subscription service could pave the way for the company's online business to generate a profit, former CEO Bill Simon told CNBC on Tuesday.
Walmart, the largest US grocer, announced earlier that its Walmart + membership program will start on September 15th. The program is a by-product of many of the subscription plans the company has played with over the past decade, and it draws inspiration from everyone, said Simon, who ran the retail giant from 2010 through 2014.
"It's something you've long wanted," he said in an interview about Closing Bell. "What Walmart is trying to do – and it's been their secret sauce for many years, especially with the supercentres – is to try to pick up the traffic, in this case clicks, generated from their really robust grocery store, and sell general merchandise in this case to try to make their online digital business profitable. "
Walmart saw sales surge amid the pandemic, benefiting from both its extensive reach for U.S. households with physical stores and years of investment in its e-commerce operations. In its most recent quarterly report, the company increased sales in the same store in the US by 9.3%. This is due to a 97% increase in online sales as consumers spent more time shopping online and shipping packages to their homes or picking up roadside pick-up orders on the same day.
Online profits continue to elude Walmart, but the company said it was making progress. Walmart reduced its losses in its e-commerce business in the quarter ended July 31, and the size of the company is critical to increasing profitability, according to Atlantic Equities Research. The company also believes that Walmart + would help the discounter attract new customers and build customer loyalty.
Doug McMillon, CEO of Walmart, said after the company reported quarterly figures last month that it would like to leverage the new customers with the membership program.
"It has been really hard for them to get profitability and if they can mix it with more general goods this is where they can probably get profitable," Simon said.
Walmart + costs subscribers $ 98 per year or $ 12.95 per month. In return, customers get unlimited free delivery on orders over $ 35, fuel discounts, and the ability to skip checkouts with a checkout app. By comparison, Amazon Prime members charge $ 119 per year, or $ 12.99 per month. This includes free two-day shipping on all orders, same-day shipping on some orders, and free Whole Foods grocery delivery for orders over $ 35.
The subscription service is seen as a way for Walmart to compete with Amazon, but both the company and Simon have downplayed the claim.
According to Simon, Walmart has a "very distinct advantage in the online grocery store" in that it has a much larger footprint and reaches about 90% of households than Amazon Whole Foods. Walmart has more than 4,700 stores in the United States.
"I don't think it's a competitor to Amazon because everything is like that – but I don't think it's a direct competitive step," he said. "I think it's an attempt to use their grocery store."
Walmart stocks rebounded in Tuesday's session as investors paid for the stock on the news. Shares rose more than 6% to $ 147.59 at close of trade, a record high.
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