Walmart announced a new partnership with e-commerce platform Shopify. Shopify is used today by over 1 million small-to-medium sized businesses, offering services “including payments, marketing, shipping and customer engagement tools to simplify the process of running an online store.”  The partnership clearly makes sense for sellers if they can get cheap access to Walmart.com’s 120 million monthly visitors.

I covered Amazon’s third-party marketplace in a previous post, but if you’ve been on Walmart.com recently, you’ve probably seen third-party listings such as the one pictured below. In fact, a cheap-o like me has started to notice that Walmart’s prices in many cases are cheaper than Amazon (with no Prime membership either).

So if Walmart already allows third-party players to sell on its site, why is partnering with Shopify important?

1. This is Walmart’s first real foray into allowing small-and-medium sized businesses access to its platform. Currently when you shop on Walmart’s site, you’ll see merchants such as Autozone. This opens the playing field to many smaller businesses. As the program ramps, this could allow Walmart to quickly add literally hundreds of thousands of sellers.
2. It’s very competitive with Amazon. Shopify’s announcement noted that, “unlike other retailers” Walmart charges no setup or monthly fees, though it will charge a “referral fee”. It looks like Walmart will charge anywhere from 6-15% of the sale (except Jewelry is 20%). Amazon charges essentially the same rates, it appears. However, as discussed in my last post, Amazon charges $39.99 for “Fulfilled by Amazon” services as well as other fees.
   1. • FBA sellers don’t pay for shipping or packaging, but you do have to pay an “FBA fee” which covers these costs – detailed here
      • FBA also has monthly storage fees (which can be long-term or short-term)
      • Walmart uses a third-party to help you ship your products with 2-day shipping. The service even has a website for you to compare exactly how much it would cost to fulfill via Amazon vs. their service! Talk about targeting the competition…
3. It is launching at a near perfect time. One challenge with any marketplace is getting sellers and buyers to sign up. Walmart.com already has the buyers and COVID19 has caused all retailers to move most of their business online. That’s why US e-commerce sales were up ~74% in Q1 Y/Y. At the same time, Amazon is under anti-trust scrutiny. Perhaps this is an opportunity to launch competition in the space (while a competitor is both slightly distracted but at the same time, welcoming a competitor).
4. It is clear Walmart wants to be a platform, not just compete with them as a physical retailer with an online presence. Probably the most important item in the post and research I’ve done on Walmart’s recent actions is that it is clearly trying to pivot and use its already massive scale to its advantage. Clearly, if its going to compete in the future, it must take on Amazon.

Still though, if you are someone who wants to see a competitor to Amazon, this deal leaves something to be desired. With just 1,200 additional Shopfiy sellers (that also have to be pre-approved) it’s not really opening up the floodgates of competition.

I also wonder what products they will sell – is it items that just doesn’t make sense for Walmart to sell? Perhaps this is a way for Walmart to prune low margin sales in its portfolio and just collect a platform fee.

Either way, it’s a positive for Walmart and a clear shot across the bow at Amazon. Walmart wouldn’t be doing this if their 3P marketplace wasn’t a key part of its go forward strategy.

Walmart had just launched “Walmart Fulfillment Services” or “WFS” in February of 2020, so clearly teaming up with Shopify would help both of them to compete with Amazon’s FBA service.

It will be interesting to see if Walmart can market this well enough that consumers and sellers recognize the benefits. Consumers are paying Amazon $120/year for Prime whereas Walmart is free. Returns are free on most Amazon Prime and you can do it through any Whole Foods, but 90% of America lives within 15 minutes of a Walmart store, so returns will also be free and pretty easy for all of America (not just the 1%…). Is this a strategy that Walmart recognizes?

So far, Walmart doesn’t have a ton of sellers on its platform and it seems like its holding them to high standards (e.g. only allowing 1,200 at first in this launch, believe they only have ~300k in total vs. millions at Amazon). This may disappoint shareholders who would prefer Walmart “move fast and break things” but it also will reduce scrutiny and costs down the road like Amazon has received and it also means you’re not competing for space against a bunch of other sellers on Walmart.com.

It seems like Walmart’s stock will be one to watch in the retail space, though I do have caution given some of Walmart’s past attempts haven’t been that great (thinking Jet.com…it just ended up being folded into Walmart.com). 

This is also very interesting from Shopify. Shopify in 2020 announced the Shop app which seems to me like a clear desire to be a big platform like Amazon as this would allow Shopify sellers to access buyers in one place. Obviously, its stock has reacted and is now a $96BN (~54x LTM sales at the time of writing).  Maybe this is a sign they need a partner? Time will tell.