Competitive Analysis of Membership-Based Retailers

Analysts at Morgan Stanley recently analyzed the competitive landscape of major membership-based retailers: Walmart+, Amazon Prime, and Costco (NASDAQ:COST).

Walmart+ Membership Growth

Walmart+ is making notable progress with a membership nearing record levels, aided by strategic initiatives such as a 50% discount on memberships for Black Friday. According to Morgan Stanley's Consumer Pulse survey, Walmart+ had approximately 23.8 million members as of September 2024. When accounting for response variability, this figure is closer to 15.5 million, representing an 18.5% penetration of U.S. households.

Comparison with Competitors

Though Walmart+ lags behind Amazon Prime's 94 million U.S. households and Costco's estimated 55 million members across the U.S. and Canada, it's experiencing impressive growth with a compound annual growth rate (CAGR) of about 30% from 2020 to 2024. In contrast, Amazon Prime and Costco had CAGRs of around 3.5% and 7%, respectively, during the same period.

Membership Overlap

Interestingly, there is significant membership overlap:
– 86% of Walmart+ members are also Amazon Prime subscribers.
– 34% hold Costco memberships.
– Among Amazon Prime members, 22% also subscribe to Walmart+.

Analysts, led by Simeon Gutman, highlight that this high overlap is primarily because of Amazon's extensive membership base, demonstrating Walmart+'s competitiveness in Amazon's core market.

Strategic Promotions and Market Potential

Walmart's promotional strategies, particularly its half-price membership offer, aim to enhance its market share beyond just groceries into discretionary spending. With substantial investments in supply chain infrastructure, Walmart Fulfillment Services (WFS), and a growing marketplace, the retailer is positioning itself well.

Morgan Stanley's report emphasizes that discounted memberships during key shopping occasions can boost sales and help leverage fixed costs associated with these investments.

Furthermore, there is potential for untapped growth, as 25% of U.S. households that hold both Amazon Prime and Costco memberships have not yet adopted Walmart+.

Conclusion

Morgan Stanley discusses broader implications for consumer spending habits, indicating that as households subscribe to multiple services, retailers need to find unique strategies to capture discretionary income. Walmart's focus on expanding its membership base through competitive pricing and promotions could enhance its strength in non-grocery segments, appealing particularly to middle-to-upper-income consumers looking for value.