Walmart Inc. (WMT - Get Report) said Tuesday it will launch a free, next-day delivery service to challenge its online rival Amazon (AMZN - Get Report) as retailers step-up their efforts to cater to changing consumption patterns in the world's biggest economy.
Walmart's NextDay delivery service will apply to around 220,000 frequently-purchased items on the Walmart.com website, the company said, and will be offered without a membership on all orders over $35. The new service will launch in Phoenix and Las Vegas, Walmart said, before expanding to Southern California in the coming days and around 75% of the broader U.S. population, including 40 of the top 50 major metro areas, by the end of the year.
"Our new NextDay delivery isn't just great for customers, it also makes good business sense. Contrary to what you might think, it will cost us less - not more - to deliver orders the next day," the company said in a statement on its website. "That's because eligible items come from a single fulfillment center located closest to the customer. This means the order ships in one box, or as few as possible, and it travels a shorter distance via inexpensive ground shipping."
"That's in contrast to online orders that come in multiple boxes from multiple locations, which can be quite costly," Walmart added. "We can offer fast, convenient shipping options because we've built a network of fulfillment assets that are strategically located across the U.S. We've also done extensive work to ensure we have the right products in the right fulfillment centers based on where customers are located and what they're ordering."
Walmart shares were marked 0.76% higher in pre-market trading following the NextDay announcement, indicating an opening bell price of $100.65 each, a move that would extend the stock's year-to-date advance past 7%.
Walmart's move follows a similar offering from Amazon, the world's largest online retailer, which shifted to one-day from two-day delivery for its Prime members last month -- who pay $119 per year for the loyalty club membership -- with a strategy it said will cost $800 million over its fiscal second quarter.
Shares in Amazon were marked 1.17% higher in pre-market trading at $1,844.02 each while Target Corp. (TGT - Get Report) , the third-largest U.S. retailer which offers two-day delivery services, was seen 0.25% lower at $71.50 each.
Walmart will publish it first quarter earnings Thursday, with analysts looking for a bottom line of $1.02 per share on revenues of $125.24 billion, thanks in part to significant improvements in the group's online U.S. retail platform.
Group profits, however, are likely to be hit by rising retail gas prices, which have gained nearly 30% this year -- but are roughly in-line with prices seen over the first quarter of last year -- and rising tariffs on China-made goods, which form a notable portion of the group's international imports.
"As the largest retailer in the United States and a major buyer of U.S. manufactured goods, we are very concerned about the impacts these tariffs would have on our business, our customers, our suppliers and the U.S. economy as a whole," Walmart wrote in a letter to U.S. Trade Representative Robert Lighthizer last September.