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

[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.

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?

[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.

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.

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: 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!

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: 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)

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: 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.