Braintrust Query: Amazon/Walmart.com – An Interesting Battle to Watch

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Oct 20, 2009
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Commentary by Bill Bittner, President,
BWH Consulting

An interesting battle
began last week between the titans of brick and mortar and online retailing.
Walmart announced it will be offering ten highly anticipated hardback books
on its website for $10. After Amazon responded to match the $10 offer, Walmart.com
raised the stakes by lowering their price to $9.

Walmart.com CEO Raul
Vazquez told cnnmoney.com, the
retailer was “committed to providing our online customers with the lowest prices
available.” Observers are left to wonder if this is an effort by Wal-Mart Stores
to merely revamp the book channel or if there is a larger objective to build
awareness of their online presence.

Wal-Mart is often
cited as the most efficient brick and mortar operator. They are well known
for their effective investment in IT applications to support their retail operations.
Their effective implementation of warehouse automation and even their experiments
in RFID all demonstrate an emphasis on efficient distribution. They have enjoyed
the advantage of being able to offer their customers the “immediate gratification”
that having a physical presence enables. But Wal-Mart has also heard the footsteps
as online retailers are becoming a larger force in the retail channel. This
announcement is their way of telling everyone they are not going away.

Consumers are becoming more comfortable with online purchases and delivery.
Broadband internet connections have become more common, providing quick response
times with full video and audio support. This enables retailers to develop
interactive experiences on their website or imbed reference to their online
stores in popular virtual worlds such as Facebook, YouTube, etc. Creating
a retail presence in the virtual world where more customers are spending
their time is becoming critical.

Amazon
has been the de facto leader in online retail. But although we tend to think
of them as a technology company, Amazon has also developed an efficient fulfillment
network with distribution centers strategically located all over the world.
Their announcement of “same day delivery” blunts
some of the advantage of retail outlets.

So this sets up an
interesting microcosm of the current retail environment as we watch these
two companies who dominated their respective channels begin chipping away
at one another. Who will win?
[Editor’s
note: Target has upped the ante and announced it will offer the same
titles as Walmart.com on its website for a pre-sale price of $8.99.]

Discussion
Questions: Is there a motive behind Walmart’s online book promotion beyond
just books? Can Amazon effectively counter the natural brick and mortar
advantage for impulse shoppers? Is Amazon’s first-mover advantage in books
too much for Wal-Mart, Target and others that may join the fray to overcome?

[Author’s
commentary] While they still only represented 3.6 percent of total sales
in the second quarter of 2009, the rate of increase in e-commerce sales is
steadily rising. Their dollar volume continues to increase at the same time
total sales volume is declining. This compounds the effect of customer moves
to the virtual world.

I
believe the Walmart move is much more than simply an attempt to sell more
hardbacks. Book buyers are Amazon’s traditional customer. By targeting their
online store at Amazon’s core customer, Walmart has made it clear they are
going after them directly. This move will at least get those customers to
visit the site and see what else Walmart has to offer.

As
far as the bigger picture, I don’t know that we’ll ever see enough detail
in the sales numbers to be able to discern the final impact. Brick and mortar
operations are tough to operate. I would not blame some retailers if they
started considering cutting back on physical locations and moved emphasis
to their online offerings. Especially in highly concentrated areas, retailers
can offer customers the ease of online shopping with the convenience of next
(or same) day delivery.

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28 Comments on "Braintrust Query: Amazon/Walmart.com – An Interesting Battle to Watch"


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Susan Rider
Guest
Susan Rider
11 years 6 months ago

Have your heard the saying “Sly like a fox”? This will be an interesting battle to watch. I agree; Walmart is certainly looking at the bigger picture. These are two well-heeled giants that execute well and set a standard that others want to emulate. In the end, the consumer will be the winner with lower book prices and great service.

Doron Levy
Guest
Doron Levy
11 years 6 months ago

Walmart wants a bigger chunk of the online market. Who wouldn’t? This is the low overhead end of the business. Wal is known for aggressive pricing (all vendor backed, of course) when trying to gain market share. Who will win is the $64,000 question but I’m leaning towards Amazon in the long run. Their cult-like following is something Walmart could never achieve.

Steve Montgomery
Guest
11 years 6 months ago

I anticipate there is more to Walmart’s move than it may seem. Losing money on every one of these books is an investment that they must expect a return on.

I have to admit, I had never visited Walmart’s web site until reading articles relating to their new pricing for the top ten books. Once there, I did order two books. As someone who reads a fair amount of fiction, I was happy to find a way to lower my reading cost. I am interested to see how they are on fulfillment. Will this encourage me to buy other items from them? I don’t know, but I’m sure it will help them generate traffic they didn’t have.

Max Goldberg
Guest
11 years 6 months ago

There is always a motive behind a big move from Walmart. By virtue of the Internet, Amazon is everywhere. Amazon is the leading online merchant due to their innovative development of the online shopping process, ease of purchase, checkout and delivery, and millions of satisfied customers.

Walmart has been watching Amazon for years and has been taking steps to get into the online game. It will be interesting to see how these two retail titans fight it out. Will consumers who have purchased from Amazon for years shop Walmart or Target? Amazon still has enough unique features–from its myriad of online sellers of new and used products, to one-click checkout–that it will be hard to catch. In the end, the consumer will win.

Len Lewis
Guest
Len Lewis
11 years 6 months ago

Now Target is entering the fray and I’m sure Costco–a huge bookseller–is not going to be left behind. This is changing the entire dynamic of book publishing. It’s interesting. But I lament the passing of book stores. I prefer browsing to scrolling.

John Boccuzzi, Jr.
Guest
John Boccuzzi, Jr.
11 years 6 months ago

It is tough to argue that Walmart is not looking at the bigger prize of attracting shoppers to their online offering. What Walmart wants Walmart almost always gets. Just look at how they attacked the grocery channel and within a few years they were the largest.

I like Amazon’s chances of beating Walmart. If Amazon continues to focus on innovation, service, assortment, ease of use, and quick delivery, price will be secondary. Walmart has to prove that their online experience is nothing like the brick and mortar experience (scary at best).

Bill Emerson
Guest
Bill Emerson
11 years 6 months ago
No question that this will be a lot of fun to watch. Walmart is looking at demographics and the long-term trends of e-commerce vs. 4-wall and is wisely stepping up its focus and investment on the e-commerce. History says that once Walmart targets a market, it becomes the dominant player within months–toys, electronics, groceries, etc, etc. However, these markets and competitors were all 4-wall. This is a channel in which two of Walmart’s biggest strengths (logistics and real estate strategy) are relatively neutral, particularly with Amazon rolling out same-day delivery. Not to mention some competitive weaknesses. For instance, Amazon has a large inventory of and/or access to older and out-of-print books through third-party book dealers, not to mention the Kindle. Walmart’s core focus on high sell-through and turnover would appear to be contradictory to this approach. Walmart is the most powerful retailer in the world. I don’t doubt that they will succeed at growing this channel. Will they dominate here like they have in 4-wall? I think not. Like I said, fun to watch.
Sandy Miller
Guest
Sandy Miller
11 years 6 months ago

Thinking that Walmart won’t succeed is not sound thinking. In fact, this price “war” Walmart started reinforces their value proposition.

Richard J. George, Ph.D.
Guest
11 years 6 months ago

Walmart always has a strategy behind its tactics. In this particular case, I believe the “bricks & mortar” king recognizes the increasing importance of an enhanced online presence. The “book price battle” is the opening salvo of the online war that Amazon has effectively avoided, to date.

Also, this battle takes some of the attention off of Walmart’s current issues confronting its more traditional channels. These issues include the following: SKU rationalization, project impact disruptions, and the transition to a greater private-label presence. The battle over books provides an opportunity to increase its online penetration and take some of the focus off of the key initiatives that will affect its performance in the short run. Great strategy!

Mel Kleiman
Guest
11 years 6 months ago

It looks like just another way to pay for clicks, and a great move on their part.

Does Walmart really care about books sales? I am not sure but they do care about attracting new customers. If nothing else, this was a great advertising and marketing ploy. We have all seen more articles and buzz on the web based on the $10.00 book price, Amazon meeting it and then Walmart saying they would not be undersold and going to $9.00.

Roger Saunders
Guest
11 years 6 months ago

This move will raise the attention, awareness, interest, and actions of millions of consumers. Both Walmart and Amazon will be immediate winners, as the timing fits nicely into the 4th Quarter.

However, sharp retailers, who have a great brand name, also have an opportunity to accelerate their online sales efforts. As interesting as the Walmart/Amazon battle may be, it will be equally important to see the steps other sharp merchants take to capitalize on an idea whose time is ready for the next jump.

Cathy Hotka
Guest
11 years 6 months ago

Walmart has always wanted to be the low-priced leader, despite actually having higher prices than than their competitors on some items. They may be able to gain a reputation as the leading discount bookseller by dropping the price on only a few books, and to capture some market share from knee-jerk shoppers who assume that the Walmart price is the lowest…even if it isn’t. And with their revenue, they can afford to experiment!

Tony Orlando
Guest
11 years 6 months ago

The Tom Hanks movie, “You Got Mail” is now coming to reality, because the losers will be the local book shops with the knowledgeable sales staff.

Price–unfortunately–will win out, and Main Street book stores will continue to disappear, just like small- to mid-size supermarkets have. A one world order with Walmart as our leader is inevitable.

What’s next? Walmart bridal shops?

Mark Price
Guest
Mark Price
11 years 6 months ago

I agree that Walmart is exploring the idea of aggressively entering the e-commerce space dominated currently by Amazon. I do not think that they will be successful in the short run. The primary reason for Amazon’s continued strength is customer experience, rather than the lowest prices. By building a knowledge base of my preferences, buying habits, shipping addresses, credit cards, etc, Amazon has built site stickiness.

This site stickiness is so strong that many customers do not even price-shop any more. When you couple the expedited and smooth customer experience built on knowledge with Amazon Prime, the pay-in-advance 2-day shipping program, Amazon has locked in their best customers in a very meaningful way.

I do think that Amazon will suffer some attrition of price-sensitive, infrequent customers, but that their market position will remain essentially unchanged.

Joel Warady
Guest
Joel Warady
11 years 6 months ago

I may be taking the contrarian view here but there are many people who purchase from certain retailers for reasons other than price. Amazon is a customer-service company first and a product seller second. The algorithms that they have developed to help predict what products customers want and when they want it have not been replicated by any other seller, online or off. To think that Walmart is going to be able to beat Amazon at this game simply because they sell product at a cheaper price is not necessarily sound thinking.

When was the last time you heard someone say that they had a pleasant experience shopping at a Walmart? It might have been a cheap experience but it is seldom pleasant. The same will hold true online. Walmart has a long way to go before they really understand online selling, and understand the social behind social media. I’ll put my money on Amazon to win this war.

Mark Burr
Guest
11 years 6 months ago

It might be an urban legend but the saying from Miejer always was, “If you want to sell your bread for a nickel, we’ll give ours away for free.” This appears to be the approach WM is taking. It’s a good challenge for a current best seller or books in anticipation–sure. Now let’s see if Amazon, which has done so much of late to improve, can continue to be close enough on service and delivery to maintain loyalty. Amazon will have and does have the advantage on selection, and always will. That’s a huge advantage for them.

I will be curious to see if they begin ‘exclusives’ as they have done in the music area. That could make it even more interesting. However, I’ve foregone the Eagles as a result. I wonder how many others have felt the same as I have.

But I digress. I do look for them to make this attempt. It seems only logical.

Gene Detroyer
Guest
11 years 6 months ago
The future of retailing is online. That is simply what Walmart’s move means. While WM has not been free from making errors when entering new markets, they have understood those errors and in every case, corrected and excelled. Online retailing will be no different. They will excel and they will be as dominant online as they are on the brick and mortar side. WM doesn’t focus on competition or what it does. WM determines what is best for their business and executes it. The best-price-on-books volley is not an effort to target Amazon. It is simply to build awareness of their new, stronger, online activity. They chose books because book buyers tend to be the cream of online purchasers. These online shoppers are the most advanced and most savvy. Bringing these shoppers into the WM online fold not only gives WM an ideal customer base but also the ability to learn how the online customer operates and behaves. As Walmart’s online presence grows, it will not mirror Amazon. It will be unique. WM will corral… Read more »
Bryan Larkin
Guest
Bryan Larkin
11 years 6 months ago
I agree with Joel. Lots of reasons to shop beyond price. Personally, I find the service, selection, and interface at Newegg to be the best I’ve found for technology. No one has the ability to do detailed searches like they do. If they don’t have it, I usually try Amazon, Best Buy, TigerDirect, Buy.com and other web sites, but get overly frustrated with their cumbersome search and presentation mechanisms. In truth, even when I ask Amazon to order items by price, it rarely works like I expect it to. If I’m the shopper, Walmart might attract me with complete, accurate and consistent product data that isn’t in text blobs but rather in finitely defined fields for easy searching. Shoot, any online retailer will get my business with that type of information. I just haven’t found anything that comes close to my favorite. The other thing that is helpful are the reviews. I like what Amazon has done and they have a huge head start. And you can find thoughtful, insightful, detailed reviews. But you can… Read more »
Jonathan Marek
Guest
11 years 6 months ago

The 1990s consulting firm Corporate Decisions Inc (CDI) coined the term “No Profit Zone” to describe areas of the economy stuck in a situation where no player (or almost no player) makes any money for a long time. Think US airlines. When I see Walmart take this shot, and I think about the transparency available to consumers on the internet, I wonder whether we are heading for a long term No Profit Zone in large categories on internet retailing. I’m not sure–this could evolve in a dozen different ways–but it is something to watch out for.

Kai Clarke
Guest
11 years 6 months ago

Wal-Mart.com is not the competitor to Amazon.com Amazon is clearly the Goliath here. The sheer number of transactions that Amazon does dwarfs Wal-Mart.com by immense factors. However, we should also note that Wal-Mart is testing the water. The importance of this is that they are choosing books during the holiday season to test. Wal-Mart is determining the price elasticity in the book market with this marketing ploy, as well as the flexibility of Amazon. Only time will tell how important this test really is….

Carol Spieckerman
Guest
11 years 6 months ago

Jumping out of the Amazon vs. Walmart (and now Target) book fray for a moment…to me, this will all get super interesting when the new wave of Kindle spawn hits Best Buy and Target in a big way (both have stated that they will dedicate space to readers for holiday and no doubt, Walmart will have its own response). The relevant question will evolve into something more specific; “Who will win the book war, where, and in what format?”

JoAnn Hines
Guest
JoAnn Hines
11 years 6 months ago

Walmart. The brand people love to hate. Most people hate shopping at Walmart, yet they do so because they save a ton of money, want a large variety of selection, or because it’s convenient. There is backlash from consumers about Walmart “owning” the brick and mortar retail world.

Now as they venture into the e-commerce space they are gaining customers because of price, not loyalty. But ultimately, price will not keep their customers if they don’t deliver the back-end services like Amazon and other online retailers. I for one wouldn’t switch outlets (being satisfied with my online Amazon experience) to save a few bucks even in a slower economy.

Dennis Serbu
Guest
Dennis Serbu
11 years 6 months ago

Technology is changing forever the way we transact business. However, one standard sticks in my mind as a young manager trainee in retail. “Any fool can give away product.”

The retail industry seems to be taking any segment that generates profit and gutting it. I am not sure a lot of good can come from this in the long term. The first victims of this strategy are variety and service. Small pockets of retailers will survive as true merchants, but we are in danger of devolving into an ugly marketplace of sameness, discount pricing and poor service. No, the sky will not fall. It will just be different. We will be able to tell our grandchildren about the way it used to be when you could walk into a store and….

Bernice Hurst
Guest
11 years 6 months ago
Consider this–Amazon has lots of advantages for people like me who use them for gift-giving because they have so many product ranges, with reasonable prices and extremely good customer/delivery service. I’ve used Wal-Mart online once for this and can’t complain but prefer the choices available from Amazon. Apart from not always wanting to send gifts to people who live close enough to Wal-Mart to go and collect–which I also wouldn’t ask them to do. No matter what Wal-Mart is hoping to achieve–and I’m sure it has extremely BIG plans–I can’t see any way their book offer can compete with Amazon. If a customer happens to want one of the limited selection Wal-Mart has on offer and wants to save a few pennies then be tempted to browse through the rest of the website or store when they pick-up, they may be tempted to increase their spend. And I know lots of people love to order online then collect offline, an indisputable Wal-Mart advantage, but overall there is such a difference in product ranges that I… Read more »
Brian Kelly
Guest
11 years 6 months ago

The current macro economic conditions are ideal to build relationships with those who otherwise might not be in a brand’s consideration set. WMT is seizing the moment to activate another strategy against its objective of increasing share of wallet among its current customers. During the past few years, after recognizing the category selectivity among more affluent customers, WMT has aggressively altered their entire brick and mortar channel selling model. (Product: merch assortment, private labeling, BH&G licensing; Place: adjacencies, sightlines, maintenance, green, POS; People: training; Promo: in-store video, signage, logo, tagline, iconography; Price: remain low price leader.)

No wonder they are adopting a similar approach to the online channel. The book category represents a natural point of entry into WMT’s online commerce presence. Tactically a lost leader; strategically increasing share of wallet.

Brilliant.

Recent efforts by WMT show its successful evolution to be in the lead of consumer-centric retail. Those who choose to not learn from their efforts provide yet another reason for us to say, “retail ain’t for sissies.”

James Tenser
Guest
11 years 6 months ago

Once again, who is going to be the “Walmart of the Internet”? Clearly the great Wal is not going gentle into that battle. Offering a few best sellers at loss-leader prices is not the point, but it is the tip of the spear.

A key difference between Amazon.com and Walmart.com lies in the long tail of assortment. In books, Amazon offers hundreds of thousands of titles in a convenient, price-competitive format. Walmart offers far fewer, but at rock-bottom prices.

A rather embarrassing example: My 2001 book, Tenser’s Tirades carries an un-enviable Amazon.com sales rank of 6,881,604. It is simply unavailable on Walmart.com.

Walmart.com doesn’t yet come close to Amazon.com in terms of selection, function, or features, but it can undercut on price for the highest-turning items. The “Top Ten Books for under $9 Each” promotion has two obvious objectives: drive publicity for Walmart.com and margin pressure on Amazon.com.

Herb Sorensen
Guest
11 years 6 months ago
The Walmart vs. Amazon initiative is truly a major milestone in what is to be a clash of the titans. But this is a battle that will reverberate far down the line, and will soon engulf Kroger (as Target is stepping in,) and ultimately will permeate all of retailing. I will not repeat here my comments on the first RW topic today–iPhone apps in the stores–but instead want to note the expected impact here on brand suppliers. No one should doubt that the internet (or maybe internet-2?) will embed itself into the lives of the majority of the population, nearly 24/7, over the next few years. The impact on retailing will be stupendous. First of all, we must see that the internet offers a way for a retailer or brand to genuinely engage individual “shoppers” in personal “conversations.” The selling that can occur is not the crass shouting and waving of arms, not the paying of customers to buy, through discounts, couponing and other mindless retail strategies, appropriate as they may be on a limited… Read more »