A package moves along a conveyer belt at Amazon's fulfillment center in DuPont, Washington.
Amazon is slashing membership fees for shoppers on welfare. Ted S. Warren/AP

The retail giant is slashing membership fees for families on federal welfare.

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.

This post originally appeared on The Atlantic.

About the Author

Derek Thompson
Derek Thompson

Derek Thompson is a senior editor at The Atlantic, where he writes about economics, labor markets, and the media. He is the author of the book Hit Makers.

Most Popular

  1. Equity

    The Poverty Just Over the Hills From Silicon Valley

    The South Coast, a 30-mile drive from Palo Alto, is facing an affordable-housing shortage that is jeopardizing its agricultural heritage.

  2. Postcards showing the Woodner when it used to be a luxury apartment-hotel in the '50s and '60s, from the collection of John DeFerrari
    Equity

    The Neighborhood Inside a Building

    D.C.’s massive Woodner apartment building has lived many lives—from fancy hotel to one of the last bastions of affordable housing in a gentrifying neighborhood. Now, it’s on the brink of another change.

  3. Design

    The Military Declares War on Sprawl

    The Pentagon thinks better designed, more walkable bases can help curb obesity and improve troops’ fitness.

  4. Life

    Why a City Block Can Be One of the Loneliest Places on Earth

    Feelings of isolation are common in cities. Let’s take a look at how the built environment plays into that.

  5. Members of a tenants' organization in East Harlem gather outside the office of landlord developer Dawnay, Day Group, as lawyers attempt to serve the company with court papers on behalf of tenants, during a press conference in New York. The tenant's group, Movement for Justice in El Barrio, filed suit against Dawnay, Day Group, the London-based investment corporation "for harassing tenants by falsely and illegally charging fees in attempts to push immigrant families from their homes and gentrify the neighborhood," said Chaumtoli Huq, an attorney for the tenants.
    Equity

    Toward Being a Better Gentrifier

    There’s a right way and a wrong way to be a neighbor during a time of rapid community change.