Battle of heavyweights: Walmart vs. Amazon

Ali had Frazier. Coke has Pepsi. The Yankees have the Red Sox.

Now Walmart, the mightiest retail giant in history, may have met its own worthy adversary: 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 such as 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. 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 week, Walmart dropped the price of the oven to $17, from $28, as part of its “Black Friday” deals. Later the same 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 Walmart 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 that they will decline 1 percent, to $437.6 billion.

Walmart and Amazon are fundamentally different companies, and for now, at least, Amazon poses little immediate threat to the giant from Bentonville, Ark.

Walmart, with $405 billion in sales last year, dominates by offering affordable prices to Middle America in its 4,000 stores. Amazon is a relative schooner to Walmart’s ocean liner, with $20 billion in sales, mostly from affluent urbanites who would rather click with their mouse than push around a cart.

This fight, then, is all about the future. Rapid expansion by each company, as well as profound shifts in the high-tech landscape, now make direct confrontation inevitable. Though online shopping accounts for only around 4 percent of retail sales, that percentage is growing quickly.

E-commerce did not suffer as deeply as regular retailing during the economic malaise, and it is recovering faster than in-store shopping. People are also shopping on smart phones and from their HDTVs.

Amazon, based in Seattle, has harnessed all of 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 seven cities, trying to replicate the instant gratification of offline shopping.

For rivals, Amazon is expanding its slice of the retail pie at what must be an alarming rate. In the third quarter of this year, regular retail sales dipped by about 4 percent and e-commerce overall was flat. But Amazon sales shot up 24 percent, sending its shares soaring.

More important for Walmart, sales in Amazon’s electronics and general merchandise business — which competes directly with much of the selection in Walmart stores — were up 44 percent. Walmart does not break out its Web sales in its reporting.

“If you are Walmart, you want to have your proportional piece of this change in consumer behavior,” said Scot Wingo, chief executive 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 Walmart’s offline business.”

That is why many analysts are unsurprised that Walmart executives have placed Amazon squarely in their sights, with public throw-downs in interviews and pointed discounting.

It began last month with what appeared to be a public-relations-oriented competition on book prices, with both companies (along with Target, based in Minneapolis) dropping prices on books such as “Under the Dome,” by Stephen King, to below $9.

Dias, the executive at GSI Commerce, said that Walmart’s campaign against Amazon is overdue. As an executive at the now-defunct Circuit City electronics chain and an adviser to traditional retailers today, she said 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. I applaud Walmart. It’s about time multichannel retailers stood up and refused to let their business go away.”

« Money

Share