In what is emerging as one of the main story lines of the 2009 post-recession shopping season, Wal-Mart Stores and Amazon.com are waging an online price war that is spreading through product areas like books, movies, toys and electronics.
Ali had Frazier. Coke has Pepsi. The Yankees have the Red Sox.
Now Wal-Mart Stores, the mightiest retail giant in history, may have met its own worthy adversary: Seattle-based Amazon.com.
In what is emerging as one of the main story lines of the 2009 post-recession shopping season, the two heavyweight retailers are waging an online price war that is spreading through product areas like books, movies, toys and electronics.
The tussle began last month as a relatively trivial but highly public back-and-forth over which company had the lowest prices on the most anticipated new books and DVDs this fall.
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By last week, it had spread to select video-game consoles, mobile phones, even to the humble Easy-Bake Oven, a 45-year-old toy from Hasbro that usually heats up small cakes, not tensions between billion-dollar corporations.
Last Wednesday, Wal-Mart dropped the price of the oven to $17, from $28, as part of its “Black Friday” deals. Later that day, Amazon cut its price, which had also been $28, to $18.
“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.”
Retailers are already fighting for every dollar consumers spend this holiday season. Sales are not expected to drop as much as they did last season, but the National Retail Federation, an industry group, predicts they will decline 1 percent, to $437.6 billion.
Of course, Wal-Mart and Amazon are fundamentally different companies and, at least for now, Amazon poses little threat to the behemoth from Bentonville, Ark.
Wal-Mart, with $405 billion in sales last year, dominates by offering affordable prices to Middle America in its 4,000 stores. Amazon is a schooner to Wal-Mart’s ocean liner, with $20 billion in sales, mostly from affluent urbanites who would rather click with their mouse than push around a cart.
Rapid expansion by each company, as well as profound shifts in the high-tech landscape, now make direct confrontation inevitable.
Though online shopping makes up only 4 percent of retail sales, that percentage is growing quickly. E-commerce did not suffer as deeply as regular retailing during the recession, and it is recovering faster than in-store shopping. People are also shopping on smartphones and from their HDTVs.
Amazon has harnessed all these trends and is also behaving more like a traditional retailer. This fall it expanded its white-labeling program, slapping the Amazon brand onto audio and video cables and other products; and introduced same-day shipping in Seattle and six other cities, trying to replicate the instant gratification of offline shopping.
In the third quarter, regular retail sales dipped about 4 percent and e-commerce overall was flat. But Amazon sales shot up 24 percent, and its stock soared.
More important for Wal-Mart, sales in Amazon’s electronics and general-merchandise business — which competes directly with much of the selection in Wal-Mart stores — rose 44 percent. Wal-Mart does not break out its Web sales in its reporting.
“If you are Wal-Mart, you want to have your proportional piece of this change in consumer behavior,” said Scot Wingo, CEO of ChannelAdvisor, which helps retailers sell online. “You can even paint a scenario where e-commerce one day is 15 percent of all shopping, and that could really start to erode Wal-Mart’s offline business.”
That is why many analysts are not surprised Wal-Mart executives have placed Amazon squarely in their sights.
Last month both companies (along with Minneapolis-based Target) dropped prices on books like “Under the Dome: A Novel” by Stephen King, to below $9.
The companies then began jousting over the prices of DVDs. Wal-Mart offered a $15 gift card with a purchase of the new video game “Call of Duty: Modern Warfare 2” — and Amazon matched soon after.
Wal-Mart and Amazon then both offered the Xbox 360 gaming console for $199 — with a $100 gift card thrown in.
Last week, they both began offering the new Palm Pixi phone for around $30 — nearly $175 off the suggested retail price.
Online retailers have always competed on price, monitoring rivals’ sites for changes and adjusting accordingly.
“We’ve grown up in a supercompetitive environment where customers can check prices with one click, and we like it that way,” said Craig Berman, an Amazon spokesman.
But rhetoric from Wal-Mart itself has stoked the rivalry. In an interview last week, Raul Vazquez, the president and CEO of Walmart.com, asserted the site was growing faster than Amazon’s; suggested that Amazon Prime, a two-day-shipping service that costs $80 a year, was too expensive; and said it was “only a matter of time” before Wal-Mart dominated Web shopping.
Friction between the two companies is not entirely new. In the late 1990s, Amazon assembled at least some of its knowledge of retail supply chains by hiring away Wal-Mart employees. Wal-Mart sued, and the two companies settled privately.
With its unmatched size, Wal-Mart has more leverage than anyone to negotiate better terms with suppliers. Offering the lowest price “is in our DNA,” Vazquez said.
Among Amazon’s advantages are a sophisticated distribution network built specifically for Web shopping, the thousands of outside sellers who offer products on Amazon.com, and a recognizable online brand.
Amazon’s customers also do not pay sales tax in most states, a crucial advantage that companies like Wal-Mart, and their lobbyists, are trying to eliminate.
Amazon CEO Jeff Bezos is fond of saying that retailing is a big market with room for many winners.
But for Dias, from GSI Commerce, Wal-Mart’s campaign against Amazon is overdue. As an executive at the now-defunct Circuit City electronics chain, and as an adviser to traditional retailers today, she says she has watched many companies overlook the long-term threat posed by Amazon.
“We have to put our foot down and refuse to let them grow more powerful,” Dias said.
“I applaud Wal-Mart,” she said. “It’s about time multichannel retailers stood up and refused to let their business go away.”