Walmart competes with Amazon unveiling new subscription service

Walmart on Tuesday unveiled a subscription service that will go toe-to-toe with Amazon Prime.

The $98-a-year Walmart+ membership plan includes free shipping on items $35 and over, including same-day deliveries on certain items from stores, such as groceries. Members will also get 5-cent-per-gallon discounts on gasoline and the ability to scan items with the Walmart app while they shop in physical stores (and pay without waiting in a checkout line).

Walmart called the new Walmart+ service the "ultimate life hack." It will replace Delivery Unlimited, which costs the same amount but was limited to about a quarter of the 4,700 stores that will ship items to Walmart+ customers.

Although Walmart+ undercuts Amazon Prime by $21 a year, it lacks many of its rival's benefits. For example, Prime requires no minimum purchase to qualify for free shipping, and it includes a number of other perks, such as free streaming of music, TV shows and movies, and unlimited photo storage. It also gives customers discounts at Whole Foods in addition to free two-hour grocery delivery.

So Walmart has some serious catching up to do. The company said it will add more features to its membership plan over time.

But the key attraction of Walmart+ may be its stores. About 90% of Americans live within 10 miles of a Walmart, according to the company. The fact that 2,700 of its stores will ship items on the same day may help it beat Amazon in delivery speeds in many areas, Walmart says.

Walmart+ will begin offering its service to customers September 15.

Walmart's stock rallied around 2% during early trading. The company's stock has jumped 16% this year heading into Tuesday

More customers are shopping online for groceries during the pandemic, and some analysts say the new membership program will help Walmart reach these shoppers. Groceries are Walmart's most important business, making up around 56% of annual sales.

However, consumers are "overloaded" with subscription options, including Amazon Prime, Netflix, and Spotify, and it's unclear whether they will be willing to pay for a new $98 one, Chuck Grom, analyst at Gordon Haskett Research Advisors, said in a note to clients Tuesday.

"The jury is still out on the ultimate potential of this new offering," he said.

Walmart last week said it has partnered with Microsoft to buy video app TikTok. Oliver Chen, analyst at Cowen, said in a report last week that Walmart could market the new service on the app to appeal to TikTok's younger user base.

By David Goldman, CNN Business with contribution by CNN Business' Nathaniel Meyersohn via The-CNN-Wire™ & © 2020 Cable News Network, Inc., a WarnerMedia Company. All rights reserved.

The Gayly. 9/1/2020 @ 9:54 a.m. CST.