Amazon Ready to Take Walmart’s Low Price Crown

Discussion
Dec 01, 2010
George Anderson

By George Anderson

What would Walmart be if it were no longer thought of as
the low price leader at retail? It may not be a purely academic question for
long. According to Kirthi Kalyanam, director of the Retail Management Institute
at Santa Clara University in California, the world’s largest retailer could
face some competition on the pricing front and it is far from certain that
it will win.

"Amazon is actually in a better position than Walmart to be the price
leader," Dr.
Kalyanam, told The Christian Science Monitor. "Amazon has a lower
cost structure than Walmart."

Amazon also has some momentum on its side
as consumers go online to make a larger percentage of retail purchases.

"Consumers
this year appear much more willing to open their wallets and are turning to
online stores for the convenience of shopping wherever and whenever they like,
but also as their primary source of information about products and inventory
levels," said John Squire, chief strategy officer, IBM Coremetrics,
in a press release. "Retailers have done an exceptional job across the
board of appealing to consumers with highly personalized promotions and a slew
of free shipping promotions."

Perhaps seeing its price advantage being
eroded, Walmart has also turned to offer free shipping on online orders as
well as in-store pickups. The retailer is offering free shipping on 60,000
gift items through Dec. 20 with no minimum purchase required.

Discussion Questions: Is Walmart in danger of losing its low price advantage
to Amazon? What would it mean for the chain if it did? Is Amazon’s model
destined to be more efficient than Walmart’s?

Please practice The RetailWire Golden Rule when submitting your comments.

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21 Comments on "Amazon Ready to Take Walmart’s Low Price Crown"


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David Biernbaum
Guest
10 years 5 months ago

Walmart is in no danger of losing its everyday low pricing image to Amazon nor any other strictly online retailer. In as much as I strongly believe that e-commerce will continue to grow to be a 20% ACV market, including Walmart.com, I do not believe that we will arrive at a point where the majority of Walmart consumers will shop Amazon or any other online retailer as a replacement for shopping inside the Walmart store.

Dick Seesel
Guest
10 years 5 months ago

Amazon has not made price leadership central to its brand position in the same way as Walmart over the years. Its brand is more defined by assortment and convenience, although it is very competitive with Walmart on similar merchandise. Nevertheless, Walmart continues to have the scale to be perceived as the low-price leader…in large part because it has the advantage of vast numbers of commodities and food being sold in brick & mortar locations at very competitive prices, in categories that Amazon barely pursues. Somebody can always beat Walmart on the price of an individual item–and frequently does–but they are still tough to beat in terms of the core premise of the business.

Dr. Stephen Needel
Guest
10 years 5 months ago

The assumption here is that low price is always low price, whether its in-store or online. I don’t think that’s true, and I don’t think shoppers think that’s true. Walmart needs to maintain its store position as “lowest” price (position, not actual). That you can buy it cheaper online elsewhere does not negate their store position.

David Livingston
Guest
10 years 5 months ago

Walmart’s low price position is being threatened. Not just by Amazon but also by Target, who seems to be gaining ground with their RedCard cash discount program. Amazon certainly has an advantage so long as customers don’t mind waiting for the mail.

Ian Percy
Guest
10 years 5 months ago

And life goes on. This item, though, reminds me of a truism that almost all of us in any field refuse to accept. That is EVERYTHING has a life cycle, meaning that sooner or later you die/lose. Or as someone more colorfully put it “Everything has a ‘Best Before’ date.” That is true whether you’re a mom & pop location or the world’s largest retailer. And yes, eventually it will apply to Amazon too. No one is exempt. Well before the peak of success, organizations need to plan for their next incarnation.

Gene Hoffman
Guest
Gene Hoffman
10 years 5 months ago

For Walmart there is an ambient need encompassing all sides of the human spectrum to remain the nation’s low price leader. After all, that’s where the largest number of consumers congregate.

Without their reputation for low-price leadership, Walmart could be considered an average retailer and that would be a real struggle. Ugh!

Carol Spieckerman
Guest
10 years 5 months ago
I’ll say it again my big takeaway from Walmart’s free shipping announcement is that, whether dreaded or welcomed by retailers, the era of pure price transparency has officially dawned. Amazon and Walmart both clearly have something to prove in the my-model-beats-your-model department and to me, that’s why the words “our scale” are peppered through most Walmart executive presentations and announcements these days. Walmart is reminding us that physical footprints count big time when they are connected to virtual platforms and I see Walmart waking up to the reality that “connect her world” can’t just be about futzing with store layouts anymore (thus the recent series of dot com-related organizational and platform announcements). As recently as yesterday in a presentation given by Sam’s president and ceo Brian Cornell, he called out tech-enabled price transparency as one of a handful of “mega trends” that Sam’s is determined to harness. To me, Amazon’s offerings are all over the place which would be a good thing if every search didn’t make that more apparent. It would be a mistake… Read more »
Ryan Mathews
Guest
10 years 5 months ago

There’s price and there’s price perception. Amazon might beat Walmart on the former but they’ll never beat them on the latter.

dsa clarkson
Guest
dsa clarkson
10 years 5 months ago

Amazon’s advantage is not paying taxes.

It is shameful that in this era of broken state budgets and the rise of the internet that Amazon is allowed to fleece traditional brick and mortar retailers who provide the inventory and customer service to allow customers to check out potential purchases which they then order online to save a few bucks and deprive their municipalities of income.

With that said, I shop at Amazon all the time.

Ed Rosenbaum
Guest
10 years 5 months ago

Even if Amazon.com becomes the low price leader; the perception of Walmart as the low price retailer is not going to change or even erode if the next in line for the dubious throne is an e-commerce provider and not brick & mortar.

Walmart’s customer base is not going to change their buying habits to purchase online when they can go to the store touch and see the product they want. You can’t hold up an e-commerce advertised shirt to see if it will fit as you can in the store. This is what the Walmart customer base as well as most clothing retailers have over the e-commerce providers and will for the foreseeable future.

Camille P. Schuster, PhD.
Guest
10 years 5 months ago

“Always Low Prices, Always” may not be Walmart’s slogan any longer, but it is still inside the head of many consumers. As Ryan says, perception is critical.

In addition, Walmart in-store shopping and Amazon online shopping is a different experience. Those two experiences do not compete. However, Walmart’s online shopping does compete directly with Amazon. It is not difficult to check prices between the two and that may well benefit and a new generation of consumers may develop a perception of Amazon as the low price leader. If that happens it could affect in store shopping as well.

Mark Baum
Guest
Mark Baum
10 years 5 months ago

I have maintained for some time that Walmart enjoys the low price IMAGE leadership, not necessarily low price (per se) leadership. Savvy consumers cherry pick between Walmart, Target, Costco, Dollar Stores, Online, et al because they know that pricing is competitive, especially in “price sensitive” categories. I am not sure wearing the low price crown, translates into converting more shoppers….

Mark Burr
Guest
10 years 5 months ago
For now, Mr. Matthews is right. He’ll likely be right on this for a long time. In price, it’s perception only, nothing even close to reality. Nevertheless, I do find the conversation interesting. The article/study states Walmart ‘could’ face competition for its perception as leader. It goes on and states that Amazon is in a better position than Walmart and that it has a lower cost structure than Walmart? Huh? What is Amazon’s strategy or voice on all of this? Maybe I’m missing something here, but it sure seems that these are two completely different types of retailers entirely. Well, maybe. Nevertheless, I can go to Amazon for things that I could never (and yes, I did say never) go to Walmart for as a source. From its inception, Amazon has fought the ‘price’ perception battle–somewhat. I do however believe that it’s never been their goal, intent, or otherwise to be the price leader. They have, however, had the goal of being the broadest retailer possible, internet or otherwise. It may be the only thing… Read more »
Jonathan Marek
Guest
10 years 5 months ago

Walmart will always have the range at low prices (especially in grocery) to enable frequency and consolidation of shopping trips. For those trips, which must be the bulk of their business, they are safe from Amazon.

Still, this is an issue. I noticed Walmart’s Black Friday circular cover was loaded with electronics deals. They are there for a reason: as a Black Friday traffic driver. Could Amazon steal the low-price positioning on those items (which aren’t for immediate use either)? Absolutely.

Marge Laney
Guest
10 years 5 months ago

Walmart is not in danger of losing its low price advantage to Amazon because they’ve already lost most of it to Target and the dollar stores. What Walmart stands to lose from the move by Amazon is its battle for the elusive ‘upscale’ customer that it covets.

Bill Bittner
Guest
Bill Bittner
10 years 5 months ago
Whenever I read “Walmart” and “Online” in the same sentence, I remember an interview with the Chairman of Walmart two or three years ago when he discussed how many non-bank customers they had. I don’t remember the specific number, but its magnitude was significant and large enough to leave the impression that it would be a long time before many of their shoppers would be using debit cards. They’re not going to be shopping online anytime soon either. Having said that, there is no doubt Amazon has an “unfair” advantage over Brick and Mortar operations. This not only applies to their cost structure, but also their ability to not charge sales taxes. Whether this will prevail depends on fuel costs and the local government efforts to close the tax loophole. But just as everyone was surprised by the shadow banking system behind the financial crisis, a few high profile cyber crimes that wipe out some consumers’ bank accounts could put a damper on the online enthusiasm. And even if there are no big losses, as… Read more »
Ted Hurlbut
Guest
Ted Hurlbut
10 years 5 months ago

We’re a long way from the distinction between online and bricks ‘n mortar becoming irrelevant. The fact that Amazon’s cost structure may rival Walmart’s is only marginally significant. They just don’t compete head to head on enough items. Walmart’s business is low-margin basics driven, with low price and need-it-now convenience the drivers. Amazon’s business is built around a different basket, with enough margin to absorb shipping costs and lesser immediacy.

Herb Sorensen
Guest
10 years 5 months ago

Retailing works because folks want and need “stuff.” If you put the stuff in a building, they will come and get it. Or you can ship it to them. Walmart is the world’s premier logistics organization at getting the stuff into a building. But the process of actually going into a building with many tens of thousands of items to find the few you want is outrageously inefficient (and often frustrating)–and not helped much by an oblivious industry that pretty much thinks this “experience” is their strong point.

Amazon, on the other hand, is the world’s premier SELLING organization, whose forte is connecting the MINDS of shoppers with the exact item(s) they want in a highly skilled selling manner.

It is a lot easier for a selling organization to hone logistic skills than it is for a logistics organization to LEARN selling skills. I’m not going to predict anyone’s failure, but someone is eating someone else’s lunch here, and, yes Maude, someday everyone will have a telephone. 🙂

Charles P. Walsh
Guest
Charles P. Walsh
10 years 5 months ago
Walmart, like any other business entity, is always in danger of losing that “thing” that defines them and drove (drives) their success. Walmart, under John Flemming, wandered away a bit from their wide and deep assortments and EDLP pricing focused on a core lower to middle income customer in favor of a narrowed, highly PL leveraged assortment focusing more on capturing a middle to higher income customer. The results were telling and the reversal has been swift. Walmart will rebuild their leadership as THE low price leader whether in their stores or online. Amazon is highly effective as an online retailer but to conjecture about Amazon displacing Walmart as the low price leader is probably not too realistic. As others have pointed out, online retailing though gaining market share, will never replace the kind of volume shopping that bricks and mortar stores achieve and is still, in my mind, a destination/item focused business model. Just one of the advantages that a Brick and Mortar stores like Walmart has over online retailers is the opportunity to… Read more »
Craig Sundstrom
Guest
10 years 5 months ago

I agree with David (the first David here, not the second): didn’t WM rise to fame and fortune selling dish soap, cheap towels, and other goods one is unlikely to buy online…and don’t they still make their money from that? Obviously I would need a breakout of specific categories–some are obviously more vulnerable than others–but I don’t see them collapsing anytime soon. Amazon still remains the Golden Child for the online-is-the-Second-Coming crowd, and seems immune to the kind of analysis one would (and should) use with everyone else.

Mel Kleiman
Guest
10 years 5 months ago

After reading all of the other posts the one item that seems to be missing is that it is a lot easier and cheaper to build an online sales and delivery system than a brick and mortar system.

It will be easier for Walmart to take the battle to Amazon than Amazon to take the battle to Walmart.

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