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

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.

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.

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.

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.

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!

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.

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?

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.

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 shoppers in the categories it feels are vital and proceed with a mix that looks nothing like Amazon. WM will also come to dominate online retailing as they have on the traditional side of the business. WM does not copy the competition. WM looks at the marketplace and independently determines how to best serve it.

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.

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?”

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….

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.”

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 basis.

The real potential is the establishment of trusted relationships with shoppers, delivering value with each communication, so that the shopper does NOT find the means to filter your contacts out.

When a brand or retailer establishes a relationship such that the shopper doesn’t mind seeing their name in the “inbox” on a regular basis, we are now in a position of incredible power, particularly when this is multiplied by the millions–billions.

Retailers of course can extend this power for the benefit of their specific stores. But manufacturers can extend this power across their range of brands, ACROSS THE RANGE OF ALL RETAILERS!!! This has huge implications, because brand has the potential to regain their position of primacy in the retail space, without being beholden to their retail channel of distribution of THEIR products.

I expect that these facts will lead to a major realignment of the retailer/brand power structure, with retailers on the ascendancy, again.

I mention the potential role of the brands here, because they are the third “Titan” that will hold the balance of power. Clearly Amazon is racing into the widest possible channel space, and will add enhanced delivery to leverage their own merger of online-offline retailing. Walmart is racing into the online space, with their formidable immediacy of delivery, AKA Walmart bricks-and-mortar offline stores.

In this clash, Amazon is clearly the superior online seller, in the sense of knowing how to use the internet to conduct “personal” sales. Walmart is leveraging their own “Always low prices,” strategy (AKA, pay the shopper to buy.)

Both of these Titans hold the #1 position in their respective retail spaces, online and offline. As each learns how to be maximally effective in the other’s space–merger of online and offline–there is no way to be certain who will win. #1 is always a precarious place. As Disraeli said on ascension to the position of prime minister of England, “I have reached the top of the greasy pole.” Sometimes the descent can be spectacular. But smart brands can win with the shoppers–and Walmart, Amazon and Target are not the only retail players.