Wal-Mart, Amazon Battle For Online Retail's Future

Hugh Pickens writes "The NY Times reports that Amazon and Wal-Mart are waging a price war for the future of online retailing that is spreading through product areas like books, movies, toys, and electronics. The tussle began last month over which company had the lowest prices on the most anticipated new books and DVDs this fall, but has now spread to select video game consoles, mobile phones, even to the humble Easy-Bake Oven. 'It's not about the prices of books and movies anymore. There is a bigger battle being fought,' said Fiona Dias, executive vice president at GSI Commerce, which manages the Web sites of large retailers. 'The price-sniping by Wal-Mart is part of a greater strategic plan. They are just not going to cede their business to Amazon.' Wal-Mart, with $405 billion in sales last year, dominates by offering affordable prices to Middle America in its 4,000 stores, while Amazon, with $20 billion in sales, caters mostly to affluent urbanites who would rather not push around a cart. But Amazon is expanding its slice of the retail pie at an alarming rate — its sales shot up 28 percent in the third quarter of this year; and sales in Amazon's electronics and general merchandise business are up 44 percent. 'We have to put our foot down and refuse to let them grow more powerful,' says Dias. 'I applaud Wal-Mart. It's about time multichannel retailers stood up and refused to let their business go away.'"

Comments

Re: Products

[eldavojohn]

Last Wednesday, Wal-Mart dropped the price of the oven to $17, from $28, as part of its "Black Friday" deals. Later the same day, Amazon cut its price, which had also been $28, to $18.

Well, color me confused, I see it as $18 on both Walmart's and Amazon's site.

It began last month with what appeared to be a public-relations-oriented competition on book prices, with both companies (along with Target, based in Minneapolis) dropping prices on books like "Under the Dome," by Stephen King, to below $9.

What? Walmart: $14.49 Amazon: $14.50

Don't get me wrong, this is great news for consumers but I think you're just seeing preperation for a Black Friday feeding frenzy and not actual 'price wars.'

'I applaud Wal-Mart. It's about time multichannel retailers stood up and refused to let their business go away.'

Wal-Mart stays away from heavily populated areas and makes most of its bank from the heartland anyway. I actually see this as Wal-Mart trying to steal a piece of the online pie if it isn't just a little bit of good ole capitalistic competition. If you think Wal-Mart's been losing business, their stock sure isn't showing it.

Amazon has one advantage

[Anonymous Coward]

Amazon has one distinct advantage: I will never buy anything from Walmart. That doesn't necessarily mean I will buy it from them instead, but at least I'm more likely to.

Re:Amazon has one advantage

[Anonymous Coward]

You can go ahead and just pay more for the same thing. I don't mind.

Re:Amazon has one advantage

[Applekid]

You can go ahead and just pay more for the same thing. I don't mind.

Except a lot of times it's not the same thing. Walmart is large enough that they can convince (read: coerce) manufacturers to making Walmart Edition versions of mainstream items. Walmart isn't the first to do this, but IS the first to do this with huge players like Whirlpool and Sony. No doubt this is because the big players can effectively be shut out of the lower middle class market by Walmart marketing the off-brands. It's a game of join the devil or die. I laugh when I see a Walmart commercial with the "Same Brands, Better Prices" theme. It's somewhat ironic that these companies that so closely guard their brand names to exploit brand recognition to imply quality are willing to undercut themselves just to get shelf space in one of the most powerful retailers in the country.

Now, those retail-specific models? You might have encountered them when trying to comparison shop and the model number you picked up from a Walmart placard cannot be found online or at other shops. Sometimes they differ by minor things: a lesser warranty or using factory-second plastic castings with a little more excess flash or slightly mismatched colors. Sometimes they differ by major things: lower class LCD panel with more permitted dead pixels or appliances with lower MTBF or lower tolerance components. A savings of pennies for a handful of resistors could mean the difference between shipping 50,000 units to Walmart or not.

That said, Amazon does it too, but for a much more customer-positive purpose. "Frustration-Free Packaging" takes manufacturer cooperation and requires them to make stuff for Amazon but it's not about presenting a false economy.

I know which company I'd rather give my money too, even if it happens to be a dollar or two more.

Re:Amazon has one advantage

[ISoldat53]

Sony's been doing this for years. They put the retailer's label on the same products various retailer sell each with a separate model number. When you go to look up a part number it will list several model numbers that it works on.

Re:Amazon has one advantage

[Dare nMc]

from your post, I am guessing you have heard about The Man Who Said No to Wal-Mart But it is good to read the whole thing, it is not a one sided, "walmart pushes them to produce lower quality", the end. It is just as often a push to produce at a economical quality level. IE its usually better to buy a lawn mower that lasts half as long, but costs 1/3 as much. In that case it also pushed down the price of the quality products, by forcing them to be more efficient as well.

Re:Amazon has one advantage

[rho]

It's probably not fair to say they were ripping customers off. Wal*Mart's economies of scale allow it to do things a mom-and-pop simply can't do.

However, when my tire went flat on a Fourth of July weekend, it wasn't the mom-and-pop tire stores that were open. It was Wal*Mart.

Re:Amazon has one advantage

[mcgrew]

So-called? As Jim Hightower points out,

The latest job numbers mock the smiley-faced claims of economists and polticos that the Great Recession is over:

-- 10.2 percent of America's workforce is unemployed -- nearly 16 million people.

-- Another 15 million people are either so discouraged by their fruitless job search that they've quit looking, or they've had to settle for part-time jobs when they want and need full-time employment. Add the discouraged and underemployed to the number of the officially unemployed, and the percentage of our people who can't find the work they need rises to 17.5 percent -- one out of every six workers.

-- More than a third of the officially unemployed have been jobless for half a year -- a record for long-term joblessness.

-- Nearly 15 percent of the unemployed have college degrees, and many more of the college-educated are underemployed.

-- October was the 22nd straight month that the U.S. economy lost jobs -- the longest streak since 1939. About 7.3 million jobs have been eliminated since December 2007, when the recession began. In this same time span, 2.8 million new workers have come into the job market, meaning our economy is now 10.1 million jobs short of the number needed just to get back to even.

-- While average wages have risen slightly in the past year, average weekly pay has stagnated because of cut hours.

So please excuse our country's workaday majority for not cheering the news that prosperity has returned to those at the tippy top of America's economic pyramid. And -- please -- do not continue to insult workers with the dismissive declaration that the economy is experiencing a "jobless recovery." Not only is that an oxymoron, it is moronic.

If most Americans have not recovered, then neither has our economy.

Re:Amazon has one advantage

[Anonymous Coward]

Exactly. It's just like those stupid mattress commercials... "We'll beat anyone's advertised price or your mattress is FREEEEE!!!!"

This is a double lie, and they know it. First, if anyone showed them a lower advertised price, they'd simply sell the mattress to you for a penny less or something. They're not gonna say, "Well, we won't sell it to you for that low, so we're going to have to give it to you for free instead." Duh.

Second, the mattress industry is in cahoots with the retailers, providing different model numbers for every single retailer. So there will never be a lower advertised price on a mattress that particular store sells. Furthermore, this makes it impossible to directly compare different mattresses from different stores when shopping. While I'm not fond of too much government regulation in free markets, I do think it would be beneficial to have better rules to bust up this kind of anti-consumer BS.

Imagine if every consumer product industry did this. It'd be a nightmare.

Re:Amazon has one advantage

[Attila Dimedici]

This is really the exception and not the rule. A overwhelming majority of the items you buy at Wal-mart are the exactly same as what you would buy at any other retailers. Especially for big purchases you should be researching based on model number and can tell that Wal-Mart is selling a different model. Either way if you refuse to shop at Wal-Mart then only you are losing. Overall, I know I am getting a better price at Walmart just by their revenue statistics. Look at them compared to any other Brick and Mortar retailer and their profit to revenue ratio is going to be the lowest. This means less of my money is going into Wal-Mart shareholder pockets and towards the manufacturer.

The problem is that the same model # from the same manufacturer is not necessarily the same at Wal-Mart as at another retailer. A major magazine (I no longer remember which one) did an article where they compared items sold at Wal-Mart with the same model number from the same manufacturer from Sears and/or J.C. Penney's. The example I remember was a particular model of American Tourister luggage. The model had a "drag" handle and small wheels. On the one from Sears and J.C. Penney's those items were metal, on the one from Wal-Mart, they were plastic.
That being said, your second point is valid and important. If one shops carefully, one can get better value for one's money at Wal-Mart.

Stereotypes much?

[Akido37]

Wal-Mart ... dominates by offering affordable prices to Middle America... while Amazon ... caters mostly to affluent urbanites

Because we all know how there are no Wal-Marts along the East or West Coasts, and those backward "middle Americans" don't have the Internet.

Re:Stereotypes much?

[castorvx]

Excuse me, I believe those middle America shoppers are called Real Americans. People these days.

Re:Stereotypes much?

[Monkeedude1212]

I can't tell if you missed the meaning of Middle America meaning Middle Class, or if it was part of your joke.

Either way, I'm sure there ARE more Wal-marts in the middle of the states, since the coasts are mostly made up of Starbucks.

Re:Stereotypes much?

[IANAAC]

It is a fact that Walmart has focused their efforts on rural areas, only very recently moving into major cities agressively. It's also a fact that Amazon's business model works slightly better for urbanites who recieve shipments faster (in Milwaukee shipments would arrive in 2-3 days with free shipping, rural Iowa it's more like 8-10 days), are more likely to have high speed internet, and are less likely to be served by a walmart/target type discount store.

The SF bay area and LA had both Walmart and Target long before rural Wisconsin did (even though Target is a MPLS-based company). Come to think of it, so did Chicago. Walmart has never "focused on rural areas", rather, they've set up shop where they believe they'll make the most money. Urban/rural has nothing to do with it.

Re:Stereotypes much?

[f97tosc]

Wal-Mart ... dominates by offering affordable prices to Middle America... while Amazon ... caters mostly to affluent urbanites

Because we all know how there are no Wal-Marts along the East or West Coasts, and those backward "middle Americans" don't have the Internet.

The words you yourself are quoting literally say "dominates by" and "mostly". Why is it that you can't make perfectly accurate demographic statements without somebody feeling the need to refute claims about "all" and "no" which have never been made? It is a good thing not to attribute a demographic average to every member of the group, but rejecting the average trend itself is just silly, and not insightful at all.

A one minute search on google revealed this paper that shows negative income elasticity for Wal-Mart shoppers. I would be shocked if further search would not give more statistical support to the orginal claim.

http://economics.missouri.edu/working-papers/2008/WP0805_basker.pdf

Re:Stereotypes much?

[ChaosDiscord]

Well, to be fair, the real reason I avoid Wal-Mart (yet strangely continue going to Target and a host of other stores) is that I dislike pushing shopping carts. It also can't possibly have anything to do with having a wider selection online, including higher quality and more durable products.

Dear original post author: if I want clueless stereotypes I know where to find Thomas Friedman.

We all win

[esocid]

For now, until one of them cedes, or make a competitive deal, even those of us who avoid Wally World like the plague. Then we all lose, but for now I'm at least entertained seeing Walmart with an adversary.

No way Walmart

[losman]

Fast shipping. Great customer service. Better prices. And most importantly there are better/quality reviews on Amazon. Sorry Walmart... and btw even locally I would go to Target instead of Walmart.

Re: Products

[Chaos Incarnate]

What? Walmart: $14.49 Amazon: $14.50

The cited prices applied at the book's release. They've gone up in the intervening month.

Welcome to the new economy

[colmore]

Remember all those quirky startups? That was a dead end. The new economy is 3 or 4 giant retailers selling everything.

Huzzah!

Re:Great... we'll rue the day BuyNLarge.com wins!

[Chaos Incarnate]

If that's the price I have to pay to get a pet WALL*E, so be it.

This is a Long Term Fight

[CodeBuster]

At TFA points out, Amazon serves more affluent urban populations that prefer to make their purchases online and thus avoid unnecessary trips to pick up items which can just as well be delivered. Not to mention the fact that many of these wealthier urban dwellers live in higher tax states and in higher cost cities where using Amazon doesn't add sales tax (New York being an notable exception) and the nearest WalMart might be a bit of a drive (assuming that they even own a private vehicle). Amazon also has a sophisticated website and online order fulfillment system, including a strong franchise in intelligent and automated recommendations, which they have built up over many years of successful business and feedback; WalMart is definitely playing catchup here. On the other hand, WalMart practically wrote the book on retail supply chain management (the TFA points out that Amazon has poached talent from WalMart in the past to improve their own supply chain logistics) and has detailed regional knowledge of consumer trends and which items maximize profits and at what prices. Amazon has their affiliate program, but these affiliates are often unable to match the prices offered by WalMart when Amazon itself doesn't stock the items in question. IMHO, in the long run, both companies will continue to be successful and while there will be battles over turf (DVDs, Books, Electronics, etc) there are sufficient differences in consumer preferences to accommodate both business models going forward.

Good?

[TwoToeWilly]

No matter who wins, the money still goes to China.

Walmart has a website?

[hoytak]

And you can buy stuff on it? brb while I google that.

Re: Products

[Beardo the Bearded]

You think that's bad? Try being in Canada. It's like a whole other country. ;) For most stores, the online policy is "you should order lube too, because Customs is going to ream you with a cheese grater".

Add 12% tax, $5 customs handling, $45 brokerage, ~$20 shipping, and 6% duty onto just about anything you buy from the US online. Then wait 4-6 weeks for the item to arrive.

considering the arcane state of tax laws,

[Shivetya]

let alone laws governing what can and cannot be shipped to where it is pretty easy to understand that one of the biggest hurdles of establishing a new business is government.

I code for distribution systems myself and the complexity of where items can go, the taxes on each per locale, and even how they must be transported, are mind boggling. Too many times competition includes fighting local governments who seem to find ways to create fines based on that day's interpretation of a law

Wait, WTF?

[Arancaytar]

They are just not going to cede their business to Amazon.' Wal-Mart, with $405 billion in sales last year, dominates by offering affordable prices to Middle America in its 4,000 stores, while Amazon, with $20 billion in sales

'We have to put our foot down and refuse to let them grow more powerful,' says Dias. 'I applaud Wal-Mart. It's about time multichannel retailers stood up and refused to let their business go away.'"

Yes! Down with the Amazon monopoly! Give the underdog with twenty times the annual sales a chance! Preserve competition!

Re:Wait, WTF?

[Yvan256]

If you need to take everything into account then Amazon helps the computer vendors, the ISPs and the shipping companies too.

Re:Sales Tax

[AlexBirch]

This dovetails nicely with this story Calling BS on Amazon's Taxation Arguments if Walmart were to eliminate this provision, then Amazon wouldn't have any advantage.

Lovely...

[hyades1]

This is like two pox-ridden whores fighting over which one gets to service the local hockey team. Whoever comes out on top, the only winner is the guy selling condoms, and the only thing certain is that a lot of people are going to get screwed.

purveyors of crap

[kimvette]

Wal-Mart has been the purveyor of crap for many years now. They push companies close to bankruptcy by insisting that the suppliers' margins be pennies per unit - or they push companies to produce cheaper, crappy Wal-Mart versions of their product with a decent profit margin, but agreeing to do it Wal-Mart's way can ruin your company by tarnishing your reputation. When Joe Sixpack buys your Wal-Mart model TV, your Wal-Mart model computer, or your Wal-Mart lawn mower and the thing turns out to be a piece of crap. Your company's name will be tarnished, and you will get the blame, not Wal-Mart. You might make millions in the short term but over the long term, think about shutting down your company and starting a new one,

Check out the Snapper story (the man who said no to walmart)

http://www.fastcompany.com/magazine/102/open_snapper.html

I shop at Wal-Mart for some things. I don't buy most appliances there though. I buy underwear, DVDs, and personal care items. Electronics, appliances I want to last for more than six months, and other bigger-ticket items I will buy elsewhere.

Re:purveyors of crap

[Applekid]

Your company's name will be tarnished, and you will get the blame, not Wal-Mart.

I'd say the blame belongs where the customer places it. Brand recognition and loyalty goes both ways, and if a company is going to slap a strong name on a piece of garbage just to get on a Walmart shelf then they deserve the erosion.

Re:Sales Tax

[tabrisnet]

It would eliminate some of the price advantage, but certainly not the logistics advantage. I still shop at Newegg, despite the fact that I pay sales-tax, vs say other vendors like Provantage. Why? because newegg can get it here in ~2 days, while other places like Provantage or GearXS will take a week.

Re: Products

[Anonymous Coward]

Ahhh. You must have used UPS. Pretty much everyone I know here (Ontario) avoids them for cross border shipping. They hit you with a tonne of hidden and unexpected charges and I know people who have been burnt really bad by this (ended up paying more than just buying it retail here)

Re: Products

[Red Flayer]

Well, color me confused, I see it as $18 on both Walmart's and Amazon's site.

What? Walmart: $14.49 Amazon: $14.50

Don't get me wrong, this is great news for consumers but I think you're just seeing preperation for a Black Friday feeding frenzy and not actual 'price wars.'

Prices have since changed, so the prices you've found don't reflect historical pricing. As for the "Black Friday feeding frenzy" vs. price wars... those aren't mutually exclusive. Periods of high sales volume are when it's most important to be able to adjust prices relevant to competition -- especially if engaged in a price war to capture volume.

Wal-Mart stays away from heavily populated areas and makes most of its bank from the heartland anyway.

Hah. How many Walmarts are there in NJ, the nation's most densely populated state? Lots. How about the San Francisco Bay area, as another poster pointed out?

At any rate, it is competition. What cracks me up is that someone siding with Walmart is claiming that Amazon is trying to drive B&M shops out of existence, and Walmart must defend B&M retail outlets against the predations of Amazon. Seems to me that Amazon is playing the same game Walmart played that drove all the traditional retailers out of business... giving customers lower prices due to reduced overhead.

Amazon Prime

[Brad Mace]

don't forget Amazon Prime. $80/yr for free 2-day shipping? That's a guaranteed money-loser for them. And I'm shocked by what they include in that offer. They've sent me all sorts of heavy and bulky items including a 70-pound air compressor and a storage cabinet that was about 4'x4'x3', all free 2-day shipping. Beats driving to the store any day. It also gets you upgrades to overnight shipping for $3.99, so unless you absolutely must have it this instant, online shopping wins.

Re:Amazon Prime

[Achromatic1978]

It also gets you upgrades to overnight shipping for $3.99, so unless you absolutely must have it this instant, online shopping wins.

And they are now trialling $6.99 same day shipping in select cities, order before 11am and have it by the end of the day.

Re:Amazon Prime

[bryansj]

They offer the $6.99 on some items when ordering next day on a Friday for Saturday delivery. I received Saturday delivery last week using Prime at no charge, but I assume this might have to do with extended hours of FedEx leading into the holidays.

Re:Amazon Prime

[keithpreston]

don't forget Amazon Prime. $80/yr for free 2-day shipping? That's a guaranteed money-loser for them..

I would bet that Amazon Prime is one of their biggest profit centers. With proper supply chain management, an Amazon Warehouse is ALWAYS close enough to you for normal ground shipping to only take 2 days. So essentially they are shipping it the cheapest ways possible for probably 90% of their prime shipments, yet they get people to pay "extra" for it. They already have free shipping above $25, which means that they are padding their prices to absorb the shipping costs. The only value Amazon prime is would be on low stock item at distance warehouses, even then the argument that they get amazing discounts from UPS makes the extra cost fairly negligible.

Re: Products

[amilo100]

Add 12% tax, $5 customs handling, $45 brokerage, ~$20 shipping, and 6% duty onto just about anything you buy from the US online.

I was under the impression that Canadians liked paying taxes.

Walmart vs. Amazon

[Anita Coney]

Amazon does not really have to compete on price. While at worst people might be agnostic towards Amazon, they hate Walmart.

Very few people are going to dump Amazon merely because the Evil Empire's a little cheaper. Buying is more than merely getting a product. The actual buying is but a small part of a larger service.

It's similar to Newegg. Newegg does not always have the lowest prices. But I know they ship the same day so I'll get it quickly and they'll fix any problems if something goes wrong. So if it's tech related, I almost always buy from Newegg. For nearly everything else, I use Amazon.

Re: Products

[rrwood]

I was under the impression that Canadians liked paying taxes.

Well played, my American friend. :-)

Signed, A Canadian, eh

Re: Products

[ISoldat53]

Let's see if they lower the price on Apple products.

Re: Products

[Abstrackt]

I do a lot of cross-border pickups, both for myself and for work, and can tell you that they do start to care if they see you often enough. They do get a good laugh out of what you would have paid for it here in Canada though.

Getting in is easy, just tell them you're driving across to save yourself the ridiculous shipping and brokerage fees. As for getting out, just tell them where you were, show them the invoice, sign the form, pay the bill and off you go. Bonus points if you drive across with an empty tank and fill up on cheap gas while you're down there.

If you're in or near Winnipeg, Connie's Depot in Walhalla, ND charges $5 (USD or CAD) for small packages and $15 per pallet. There's also a gas station half a block south so you can get the aforementioned cheap gas.

Re:Walmart not as well-run as believed...

[LandDolphin]

Probably because they did not empty them often enough. Once it over flows, a lot of people don't have a problem throwing trash on the ground near it.

Brick-and-mortar stores have an advantage.

[reporter]

Like other brick-and-mortar stores, Walmart has a distinct advantage over Amazon and other stores that have only an online presence.

Namely, products at Walmart can be sold through 2 channels: online visitors and in-store visitors. If a product cannot be sold online, then the product can remain on the shelf for an in-store visitor to buy.

If a product offered by Amazon cannot be sold online, the product sits in the warehouse. The product in the warehouse is a continuing drain on Amazon's finances since Amazon must pay the cost of maintaining the warehouse.

Amazon has been competitive against smaller retailers like Mervyns (which never survived bankruptcy) because the warehouses of Amazon are huge and offer much variety. If you cannot find a pair of pants with the right size, you can likely find the right size at Amazon.

However, this advantage is ineffective against Walmart. It is the largest retailer in the world. The variety that Walmart offers rivals Amazon.

Walmart will crush Amazon. The bell tolls for Amazon.

Re: Products

[loteck]

For those interested in the study, you can find it on IHS Global Insight's page: pdf here.

Eh.. What about the environmental impact.

[WiiVault]

And it creates massive piles in landfills and burns our limited fuels in production and transport. No thanks.