Wal-Mart's New Shipping Service Means Nothing to Amazon

NEW YORK (TheStreet) -- Wal-Mart (WMT) wants a piece a piece of Amazon's (AMZN) Prime shipping business -- at least that's the popular talking point. But the idea that Amazon should worry is grossly overstated.

What's more important is the progress Wal-Mart is making to shore up it's competitive position of its brick-and-mortar rivals. As for "attacking" Amazon? Good luck with that.

Code-named "Tahoe," Wal-Mart, the world's largest retailer, is undercutting Amazon's Prime shipping rate by 50%, offering unlimited shipping for $50 per year, versus Amazon's $99 per year rate. The company plans to roll out its new subscription shipping service later this summer on a trial basis to a select group of customers. Wal-Mart promises consumers that their items will arrive in three day or less.

Sure, it's a great strategy. The only question is, what took Wal-Mart so long?

However, this has no shot at hurting Amazon -- not where it would impact Amazon's growth objectives, at least.

Instead, Tahoe -- regardless how successful it becomes -- has everything to do with attacking Target (TGT) and Costco (COST), not Amazon. Why? One reason is because the unlimited shipping will only apply to about a million products sold at Wal-Mart. Amazon has more than 20 million eligible items that qualify for unlimited deliveries and Amazon continues to add more items each day.

"We’ve heard from customers that they want shipping that's predictable and shipping that's affordable," said Ravi Jariwala, a spokesperson for Wal-Mart. "We think there is an opportunity to put a price point that's affordable in front of them."

Wal-Mart is the price leader -- that's the business it's in. The Wal-Mart shopper is not the one Amazon is after, anyway. Amazon's Prime service, which has roughly 20 million paying subscribers as of the March quarter, has existed for decades. It's been successful enough prompting Amazon to raise the price from where Prime started at $79 per year at first launched.

Wal-Mart is entering Amazon's territory. While Prime does costs twice as much as Tahoe, Prime offers two-day shipping, not three. Not to mention, Prime also comes with Amazon's video streaming service, among other perks like unlimited photo storage.

So, can Wal-Mart compete? Absolutely. To its credit, the company has developed a sound model while also improving its technology. But this is not Wal-Mart's first crack at Amazon. Nor has Wal-Mart's aggressive price-matching strategy stunted Amazon's growth.

For that matter, it has done little for Wal-Mart stock, which is down almost 9% on the year. To the extent Tahoe can add one-percentage point in revenue to Wal-Mart's 2016 sales growth estimate of 1.4%, it would have been a success.

That's the more realistic measurement of success -- not its impact on Amazon.

This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.

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