Data Dive

Walmart Rethinks, Amazon Dominates And Mastercard Wins

The big game is over, and football is done for another year. And while it was a great game — particularly the part where the Patriots edged out the Falcons in overtime — we as a nation all face a collective conundrum:

Now, what do we do?

Well, for one — come join us at Innovation Project 2017. It’s the best way we can think of to get your mind off the sports season lull.

And keep up with the comings and the goings of payments and commerce, which is less violent than football, less boring than baseball, warmer than hockey, easier to follow than basketball and less demoralizing than politics. Plus, the seasons are literally unending — since ubiquity is the goal of all the teams playing.

So, who made something happen out there last week?

Walmart Rethinks Its ‘Prime’ Strategy

Sometimes, the best way to win is to pick a new game to play.

Such seems to be the operating logic out of Walmart, which announced last week that, after some initial testing, it is pulling the plug on its Prime competitor, ShippingPass.

Walmart’s service would have been cheaper than Amazon’s — $50 a year versus $99 — but it was much less robust as it lacked add-ons, like music and video streaming or unlimited cloud-based photo storage.

Plus, about a third of Walmart customers are already logged into Prime, and it is hard to imagine a switch given that Prime’s renewal rate, according to Kantar, is in the 90 percent range.

So, instead of playing the membership game, Walmart is playing the free shipping game — dropping the free shipping threshold from $50 to $35. And the shipping is faster. In the past, the $50 expenditure only netted consumers three- to five-day free shipping; going forward, $35 will entitle consumers to two-day shipping.

“In this day and age, two-day shipping is really just table stakes,” Marc Lore, Jet.com founder and now president and CEO of Walmart U.S. eCommerce, said last Monday (Jan. 30). “We don’t think it’s necessary to charge a membership [fee] for it.”

Those who paid for a ShippingPass will get a full refund.

Whether the lower threshold will peel away some of those Amazon shoppers remains to be seen. But Walmart seemed to be after the two-thirds of its customers who were, as yet, uncommitted.

Amazon Chokehold On eCommerce Sales Got Tighter

According to a new report by Slice Intelligence, Amazon accounted for 43 percent of all online sales in 2016.

According to the report, Amazon also made up more than half of all the growth in online retail sales in the U.S. last year.

Internet Retailer suggested that Amazon made up about 33 percent of total domestic eCommerce sales in 2015, an increase from 25.4 percent in 2012.

Prior to this point, a single firm carrying market share of 40 percent or more has been mostly unheard of in the retail industry. Walmart, for example, has a little more than 9 percent market share in terms of total U.S. retail sales. Slice Intelligence attributed most of Amazon’s gains to sales in the electronics, home and apparel categories.

“Electronics account for a significant portion of Amazon’s growth, which is not surprising given the size of the category and Amazon’s very successful Echo line of products,” said Ken Cassar, a principal analyst at Slice Intelligence, in the report. “More interesting is the contribution that smaller categories, such as home and kitchen, food and health and beauty, made to Amazon’s sales growth. [The consumer packaged goods category] is proving to be a big catalyst of Amazon’s expansion.”

Good news from third-party reports to the side, however, Amazon suffered something of a setback in the aftermath of its quarterly earnings release last week as investors sent the share price down 4 percent after-hours. Though the headline EPS number came in at $1.54 a share, outpacing the $1.35 that had been projected by analysts, revenue missed analyst expectations. Amazon reported $43.7 billion, falling below The Street’s guess of $44.7 billion.

Also enjoying a good news/bad news sort of week.

Mastercard Wins In Court (Misses On Earnings)

Mastercard got some good news to kick off the week: a High Court ruling in its favor in a lawsuit brought on by some of the U.K.’s top retailers regarding interchange fees.

At present, Mastercard is defending 10 separate lawsuits from U.K. retailers seeking about £1.2 billion in compensation on accusations that the card network set anti-competitve interchange fees on consumer credit and debit card transactions.

In a ruling handed down in Mastercard’s favor, the presiding judge — Justice Popplewell — ruled the rates as charged were necessary in order for the company to operate.

According to a statement released by Mastercard, the judge had “carefully analyzed Mastercard’s interchange rates for the entire period of the claim and found that those rates were significantly below the lawful level of interchange that could have been charged to the retailers for those benefits.”

The ruling came as a surprise to the retailers, with their lawyers stating that the European Commission, the General Court and the Court of Justice of the European Union had all ruled that Mastercard’s interchange fees were anti-competitive.

However, Judge Popplewell said the instances in question in these suits came from a different time period than the dates investigated by the European Commission. That period was between 1992 and 2007, with the dates in the lawsuit showing “only a small period of overlap.”

“I must decide the case on the evidence before me, which is largely directed to a different period of time and a different market,” the judge said.

Stewarts Law, the firm that represents the retailers in this lawsuit, called the judge’s decision “disappointing” and will most likely appeal. Some of the retailers involved in the suit include Asda, Morrison, New Look and Next.

Mastercard, despite the dispute, said in the statement that it remains “committed to our retail partners and will continue to focus on helping grow their businesses and encouraging the adoption of ever more convenient, safe and secure payments.”

However, Mastercard, like Amazon, had some tougher times when it released earnings later in the week. Shares were down roughly 2.8 percent as the company beat earnings estimates in the Dec. 2016 quarter but missed on the top line.

On an adjusted basis, net income came in at $0.86 per share, a penny above The Street’s estimate and 4.8 percent higher than last year’s fourth quarter. Holiday spending did push revenues up 9.5 percent year over year to $2.76 billion during the holiday period. However, it was short analysts’ estimates that the firm would earn $2.79 billion.

 

So, what did we learn last week?

Well, as Mastercard CEO Ajay Banga noted during his call with investors post-release, it is a marathon, not a sprint (said specifically in regard to digital payments transformation).

Given Walmart’s evolving strategy, Amazon’s high expectations and Mastercard’s diversity of interests, that is probably a pretty good metaphor for the payments and commerce season, too.

’Til next week.

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