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[8 comments]

Walmart Cites Gains, Cuts Prices, Faces Amazon

March 29, 2012

In three different news accounts, Walmart is seen as making strides in its U.S. business, continuing its cost-cutting ways to outlast its many competitors, and looking for technological answers to address the growing challenge it faces from Amazon.com.

Reuters reported that Walmart has made small gains in same-store sales over the past two quarters, reversing nine straight quarterly declines.

"I'm happy to tell you that strong momentum that we closed the year (with) continues in our new fiscal year, throughout February and our current month of March," Duncan Mac Naughton, chief merchandising officer or Walmart U.S., said at a conference in Toronto.

Walmart has reemphasized price in recent quarters and added items previously delisted in a SKU optimization exercise that failed.

The company also seems committed to outlasting its competitors with price cuts. According to a Dow Jones Newswires report, Walmart intends to cut $1 billion on grocery items this year. Management is hoping that consumers dealing with high gas prices and other financial challenges will turn to the chain in increasing numbers. The sacrifice of some margins, it is assumed, will be made up by greater traffic to its stores and weakened competitors unable to keep up with Walmart on a race to the pricing bottom.

One competitor Walmart might find it difficult to outlast is Amazon.com. According to analysts at Kantar Retail, a growing number of Walmart shoppers are making purchases on its online rival's site. Five years ago, about one in four Walmart shoppers also bought goods on Amazon. That number has since jumped to one in two.

"If the trend continues, with Amazon up and Wal-Mart down, by the 2012 holiday season Amazon could well be the most shopped retailer," Anne Zybowksi, an analyst with Kantar, told MSNBC.

Walmart has responded with the creation of WalmartLabs and a more focused effort on its online business along with steps in the social and mobile realms.

Still, Walmart will need to effectively up its game to stem the Amazon tide.

In 2009, 59 percent of online holiday shoppers had Walmart as their top destination, according to Kantar's Retail ShopperScape data. Last year, the number was 53 percent. Amazon, during the same period, grew from 38 percent to 46 percent.

FINANCIALS:     [NYSE:WMT]

Discussion Questions:

Discussion Questions: Will continued price cutting work to Walmart's advantage in the brick and mortar world? What will Walmart need to do to achieve the same type of dominance in the e-commerce arena?

While we value unfettered opinion, we urge you to show respect and courtesy for people or companies about whom you comment. Keep in mind that this is a public, professional business discussion. RetailWire reserves the right to edit or refuse the publication of remarks that we deem unsuitable. We may also correct for unintended spelling and grammatical errors.

Instant Poll:

Is price cutting the answer to Walmart's challenges online?

Comments:

Walmart realizes that grocery prices drive customers into its supercenters, providing the opportunity to make non-food, higher margin sales. This pricing strategy has been consistent with the company's long term strategy for years and appears to be quite effective when dealing with traditional bricks and mortar food retailers.

Amazon is an entirely different story. Amazon's strength is in developing customized customer intimacy. While Amazon's prices are very competitive and its Amazon Prime option is quite attractive, the Amazon system is driven from the customer's perspective. Historically, Walmart's strength has been as a distribution company, less so as a customer-focused marketer. This needs to change if Walmart expects to fend off the advances of Amazon.

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Richard J. George, Ph.D., Professor of Food Marketing, Haub School of Business, Saint Joseph's University

Walmart is, unfortunately, fighting a holding action in the brick and mortar world where it daily faces the daunting challenge of having to meet and exceed analysts' demands. There is a natural limit to growth and once you've achieved functional saturation of a market you're going to have trouble generating profitable, sustainable and consistent growth quarter after quarter. That's just a fact. And, since the analysts are unlikely to change, it ultimately is a losing game.

Online, Walmart needs to rethink what e-commerce is and can be in the same way Sam Walton rethought physical store retailing. Without that rethinking, Amazon will take them in the end.

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Ryan Mathews, Founder, ceo, Black Monk Consulting

Price cutting will have to work for Walmart. Its their only strength.

David Livingston, Principal, DJL Research

Not being expert in Walmart's internal hierarchy, it may or may not make sense to create some separation in brick and mortar and e-commerce business divisions.

Certainly, the company as a whole is one of the few to be capable of turning Amazon back. While Amazon is touted for its logistic strength, Walmart knows a couple of things about logistics and for all we (I?) know, Amazon has taken several pages from them. And... as mentioned, they can undercut with the best of them.

If they truly want to hammer Amazon before it's too late (I think there's still time) they can out-service and cost cut Amazon backed by brick and mortar revenues/presence. Here's one example: if Walmart put a very friendly, quick, hassle free, e-com-only returns window in every store, how can Amazon match it? Here's another: Amazon's site is not the greatest -- there's plenty of room for Walmart to REALLY (I mean it) take online shopping to a new level with new innovations in e-commerce.

I just will not agree that e-com is all over and that there will be just a handful of players dominated by Amazon way in the lead. They are not that all-powerful.

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Ken Lonyai, Digital Innovation Strategist, co-founder, ScreenPlay InterActive

Walmart will continue work to maintain their position as everyday low price leader -- their customer base has shifted somewhat during these challenging times and sought value elsewhere, particularly in food and households. To achieve growth in ecommerce, the customer shopping experience will have to be transparent, compelling, and deliver value.

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Anne Bieler, Sr. Associate, Packaging and Technology Integrated Solutions

Based on patterns from the BIGinsight Monthly Consumer Survery, online shoppers rank sites on flexible return policies, low pricing/value, free shipping, website ease of use, pick up or return at store, and toll free "live" person interaction if needed, as their top priorities.

Walmart can and should be able to meet expectations in each of these areas, much as they do within their brick and mortar model. Amazon holds a strong position within online shopping, but that doesn't mean they are the only "door" consumers will knock on to fulfill their needs.

As in all areas of retail, Walmart's success in e-commerce will come from proper execution to convert, retain, and acquire customers. That same execution will lead to the frequency and ticket build that generates the cost-efficiencies that keep the engine motoring along.

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Roger Saunders, Managing Director, Prosper Business Development

So let's see, if I'm thinking of buying a car from, say Hyundai, and I "also" shop at Amazon, is the latter a threat to the former? I think not; obviously there is more overlap with Walmart...but how much? Something more is needed than generalized statements about consumer behavior to see the impact of one upon the other. (Side note: my biggest surprise from this article was that WM was the biggest holiday destination for online shoppers ... 59% no less... so much for the dismissive remarks that few of their shoppers can afford and/or use a computer).

'notcom'

Walmart cannot continue to cut prices and hope to grow its sales and profitability. The key fact here is that the percentage of its customers that now shop at Amazon has grown, doubled -- a 100% increase!!! -- in the last five years, from 25% to 50%. That trend is not going to reverse and as long as WMT focuses on price, it's going to continue confronting the economic principle known as the "Law of Diminishing Returns."

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Phil Rubin, CEO, rDialogue

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