The heat is now on Amazon (AMZN) to respond to Walmart's (WMT) new plan to give discounts for picking up stuff at its stores, or else.

"We analyzed the price impact across 400 plus of Walmart's stock-keeping units (SKUs) tied into the move and found an average 3.5% discount, with bulkier/heavier-item categories exhibiting a tendency to have higher discounts," Keybank analyst Ed Yruma wrote in a new on Thursday. "Amazon is likely to remain price competitive with Walmart initially, though we expect a margin headwind as Walmart's item list expands. Longer term, Amazon could respond by increasing its reliance on physical stores."

On Wednesday, the world's largest retailer started allowing customers making online purchases on an initial 10,000 items to either take advantage of its free, two-day home shipping option or have it sent to a local Walmart store, at a discounted price.

Pickup discounts vary by item. For example, the price of a Britax B-SAFE 35 Infant Car Seat, Slate Strie at $148.05 will have an additional discount for pickup of $7.40.

The discount option will roll out to an additional 1 million popular items by the end of June.

"We are at a point right now where we are really able to leverage the assets that are unique to Walmart," Marc Lore, president and CEO of Walmart eCommerce U.S. told TheStreet in an interview

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