By Nandita Bose
WASHINGTON (Reuters) - Walmart (NYSE:WMT) Inc is stepping up its battle with Amazon.com Inc (NASDAQ:AMZN) by offering one-day delivery without a shipping fee, weeks after Amazon announced a similar offer - a move that will intensify the race to deliver orders to shoppers faster.
On April 25, Amazon said it plans to deliver packages to members of its loyalty club Prime in just one day and expects to spend $800 million toward the shipping goal in the second quarter alone.
Walmart's offer applies to fewer products. As many as 220,000 items, which are the most frequently purchased, ranging from laundry detergent to toys and electronics will qualify for one-day shipping. The orders have to be worth at least $35 to qualify.
The Walmart deal will be available to online shoppers in Phoenix and Las Vegas and then expand to Southern (NYSE:SO) California in the coming days, the head of its U.S. ecommerce service, Marc Lore, told Reuters in an interview.
The service will be rolled out gradually, with a plan to reach approximately 75% of the U.S. population this year, which includes 40 of the top 50 U.S. metro areas, Lore said.
One-day shipping marks the latest salvo in a fight between two retailers that have consistently tried to outdo each other in everything from online order delivery to grabbing a bigger share of the online grocery market.
Walmart started offering same-day pickup in its stores in 2011 and caught up with Amazon's two-day free shipping two years ago by offering it without a membership fee. It has made progress in closing the gap with its e-commerce rival by rolling out services such as curbside grocery pickup and same-day grocery delivery - options that have quickly become popular with shoppers.
Amazon, on the other hand, has hastened to reproduce the assets of brick-and-mortar rivals such as Walmart and has a mixed record with those projects. It is now racing to open shops with top-selling items ranging from books to cell phones; rolling out same-day curbside grocery pickup and gearing up to accept returns at all U.S. Kohls Corp department stores.
"We have been working on this since I have gotten here...we have been building out the infrastructure for the last few years to support this," said Lore, who joined the retailer in 2016 when it acquired his company, Jet.com.
The vast majority of the order volume for such a service comes from the "first couple of hundred thousand" products, he said.
The move will cost Walmart less as orders will be delivered from warehouses closer to the customer and arrive in a single box instead of multiple packages, Lore said.
"It is counter-intuitive... but the way we have structured our network, we will see improved profitability as a result of lower shipping cost," he said.
Walmart sends out boxes from multiple warehouses around the country under its two-day shipping program, but with one-day shipping, it is stocking inventory in the closest single warehouse to the shopper, Lore said.
In a note on Monday, investment bank UBS anticipated a move to one-day shipping from brick-and-mortar retailers and estimated the price tag.
"The bottom line is that these costs are pretty manageable," the note says.
Walmart will put down $215 million of incremental investment. The U.S. business could see a drag on operating margins of 5 basis points on an annualized basis and 3 basis points for Walmart overall over a similar period if they follow Amazon's one-day shipping offer, the note says.
Lore told Reuters the math in the note was not accurate.
He also said the recently implemented tariffs on Chinese imports will not hurt demand as most are best-sellers and popular items that shoppers will keep buying even if prices rise.