After making several moves last year to grow its sales to lower-income consumers, Amazon.com (AMZN) has just launched another one, and it might soon partner with major banks on yet one more.
The moves give Amazon additional weapons in its battle against Walmart (WMT) , whose U.S. retail gross merchandise volume (GMV) is believed to still be about twice Amazon's. Moreover, with Amazon Prime already possessing sky-high penetration rates among higher-income U.S. demographic groups, the efforts could also prove vital in keeping Prime's subscriber base growing at a healthy clip.
On Wednesday, Amazon announced that Medicaid recipients, who account for about 20% of the U.S. population, can subscribe to Amazon Prime for just $5.99 per month. This follows the June 2016 launch of a similar discount for U.S. consumers relying on food stamps and other government-assistance programs, and the 2010 launch of discounts for college students (they can currently get Prime for either $49 per year or $6.49 per month).
Amazon's regular rate for Prime is $12.99 when paid on a monthly basis, and $99 per year when billed annually, which works out to $8.25 per month.
This column has been updated from March 5 to mention the launch of Amazon's Prime discount for Medicaid recipients.
News of the Medicaid discount comes a few days after The Wall Street Journal reported that Amazon is talking with JPMorgan Chase (JPM) , Capital One (COF) and other large banks to create a "checking-account-like product" aimed at "younger consumers and those without bank accounts." The company is also reportedly looking to bring Amazon Pay, its online payment platform/would-be PayPal (PYPL) rival, to Whole Foods and other bricks-and-mortar stores.
It could still be a little while before the banking service is formally launched. The WSJ says it's too early to know exactly what Amazon's offering will look like, including whether it can be used to write checks, pay bills and access an ATM network. It does say, however, that the effort won't result in Amazon itself becoming a bank, a move that would subject it to a variety of additional regulations.
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The report comes 11 months after the launch of Amazon Cash, a service that allows consumers lacking a bank card to add anywhere from $15 to $500 to their Amazon store balances at the bricks-and-mortar stores of CVS, 7-Eleven, GameStop and over a dozen other retailers. And it comes nine months after the launch of Prime Reload, which gives Prime members a 2% bonus to any funds added to a digital "gift card balance" using a debit card or checking account.
There were also a pair of early-2017 moves -- they followed Walmart's introduction of a $35 free shipping minimum for millions of items -- that lowered the free shipping minimum for non-Prime purchases from $49 to $25. And though targeting customers in general, it's worth noting that Amazon's investments in creating a quality mobile shopping experience are likely giving it a boost with low-income shoppers in the U.S. and elsewhere, given how many of them now only access the Internet via their smartphones. In December, Amazon disclosed global shopping for its core app rose 70% annually during the holiday season.
Clearly, Amazon is hoping its efforts to woo low-income consumers will help it fend off Walmart.com, which has been revitalized under the leadership of former Jet.com CEO Marc Lore. But with Walmart's U.S. e-commerce GMV share believed to still be less than one-tenth of Amazon and the company having seen its e-commerce growth slow sharply in the January quarter, this threat seems overstated.
Amazon's likely bigger goal is to take share from the bricks-and-mortar operations of Walmart and other low-cost retailers. That's not always an easy thing to do with cost-conscious shoppers, given the low per-unit shipping costs and big volume discounts Walmart and others enjoy for many high-volume goods. But Amazon's recent moves, when combined with its convenience, scale and (as more warehouses are built) gradually-declining shipping and fulfillment costs, leave it well-positioned to steadily gain ground.
And along the way, Amazon is hoping to convince more consumers that (in Bezos' words) it's "irresponsible" not to be a Prime member. A Q1 2017 Piper Jaffray survey found that while Prime had an 82% penetration rate among U.S. households earning over $112,000 per year and a 67% rate among those earnings $68,000 to $112,000, it had sub-55% penetration rates among lower income brackets.
Already high U.S. Prime penetration rates are presumably a big reason why Amazon's subscription services revenue growth, which is driven by Prime membership fees, slowed to 49% in Q4 (still impressive) from 59% in Q3. The company's push to win over low-income consumers, together with strong international momentum, should provide a boost to 2018 growth rates.