Walmart’s Improved Free Shipping Will Cost It Dearly

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Walmart. “Live better.” “Save Money.” More recently, get free shipping on a wider range of products, just as the holidays approach. The new free shipping program will cost Walmart Inc. (NYSE: WMT) a lot of money.

Walmart will start to offer free two-day shipping for items sold at the retailer’s “MarketPlace.” This segment of Walmart.com is for items sold by third parties and not by Walmart. Walmart wants to make free shipping and pickup of these MarketPlace items as good as those offered on Walmart’s own inventory.

The world’s largest retailer said the new holiday promotion will allow customers new conveniences:

With that in mind, we’re making two significant changes to our marketplace shopping experience. We’re working with our marketplace sellers to make millions of items available for free two-day shipping without a membership fee and simplifying the returns process for items purchased from marketplace sellers, including launching the ability to facilitate returns of these items at any one of our 4,700 stores. The improvements will begin to roll out this November, just in time for the holiday season.

It also will make returns of third-party items to stores easier. The system must be complex, because of the huge number of third-party partners Walmart has.

What Walmart did not say is that the practices are not just aimed at customer convenience. Amazon.com Inc. (NASDAQ: AMZN) also has a massive competing third-party business. As is the case with Walmart, service by these sellers is uneven, which reflects poorly on both companies. That, in turn, can cause customer attrition. The battle between the two companies to get and hold customers already has become aggressive because sales in November and December are so critical to both revenue and profits.

Free shipping is not free for Walmart. It adds costs to every online sale. As these sales mount into the hundreds of millions of items, Walmart ships them via UPS, FedEx and the U.S. Postal System. And for Walmart, those shipments are not free.