On Tuesday, Amazon announced that it will slash the price of membership to its Prime program by almost 50 percent for low-income shoppers on federal welfare. The move might seem like a unique form of private-sector charity for poor Americans, after decades of disappointing wage growth. But it’s also a direct challenge to Walmart, the reigning king of American retail, which relies heavily on low-income shoppers and receives nearly one of every five dollars of its revenue through SNAP, or food stamps, each year.
Prime, which includes fast premium shipping and access to movies, games, and exclusive Amazon television shows, typically costs $99 upfront or $10.99 a month. Households that can show they’re receiving public assistance, such as Temporary Assistance for Needy Families (TANF) or the Supplemental Nutrition Assistance Program (SNAP), will be able to subscribe to Amazon Prime for just $5.99 a month. Customers can register using their EBT, or electronic benefit transfer card, which is used to distribute welfare benefits from the government. In a statement, the company said it is working on other ways for customers on welfare to participate.
The move comes as many traditional retail companies are in a tailspin and the nation’s two most prominent retailers are locked in a battle for the future of American spending. Walmart versus Amazon is a King Kong-versus-Godzilla showdown, with the two companies combining for more than $600 billion in revenue in 2016—about the size of the entire Defense Department. Ninety percent of Americans live within 10 miles of a Walmart. Nearly half of American households subscribe to Amazon Prime. Walmart takes in more revenue than any company in the world; last year it earned more than the second- and third-place U.S. companies, Apple and Exxon, combined. But the retail king hasn’t grown faster than 2 percent in five years, while Amazon has doubled since 2012 and is now the fourth-most-valuable company in America by market cap, between Microsoft and Facebook. Walmart is 12th.
With today’s announcement, Amazon is trying to become Walmart faster than Walmart can become Amazon. In other words, Amazon is trying to expand its consumer base just as Walmart’s e-commerce business has taken off with the purchase of e-retailers like Jet.com and Modcloth.
Prime is the most important part of Amazon’s retail business. Not only does a Prime membership guarantee a steady revenue stream for the company, but it also makes Amazon top-of-mind for consumers. Analysts estimate that there are between 60 and 80 million Prime subscribers in the country, and the typical Prime household spends more than twice as much on Amazon as a non-Prime family.
But so far, Prime’s growth has been bounded by income and Internet access. More than 40 percent of U.S. households say they rarely or never shop on Amazon, according to The Wall Street Journal, and just 30 percent of SNAP recipients have access to Prime. There are still huge barriers for families on welfare to shop online, since low-income families often don't have a bank account or credit cards. But a steep discount could encourage more welfare recipients to join the Amazon bundle, fueling the retail war that continues to wreak havoc on the industry at large.