It’s the latest version of the Gunfight at the O.K. Corral

November 27th, 2009

This one is the sponsored by AOL and other Internet Providers
In this corner we have Wal-Mart, champion retailing giant on the planet, and here on my left is the young challenger, Amazon.com.

The online price war
The prize in this fight is the price war that is spreading through the enormous shopping areas of books, movies, toys and electronics.

‘Tis the coming Christmas season
The shopping competition began last month as a highly public back-and-forth over which company had the lowest prices on the most-anticipated new books and DVDs this autumn. 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. A week ago, Wal-Mart dropped the price of the oven to $17, from $28. Later the same day, Amazon cut its price, which had also been $28, to $18 in response.

The Walmart strategy
According to Fiona Dias of GSI Commerce, which manages Web sites of large retailers, there is a bigger battle being fought. “The price-sniping by Wal-Mart is part of a greater strategic plan. They are just not going to cede their business to Amazon.” Wal-Mart and Amazon are very different companies. Wal-Mart, with $405 billion in sales last year, dominates by offering affordable prices in its 4,000 stores. Amazon has a puny $20 billion in sales, mostly from affluent urbanites. The fight is about the future. Rapid expansion by both companies, as well as major shifts in the high-tech landscape now makes direct confrontation inevitable.

Online shopping
With all the fuss going on, online shopping accounts for only around 4 percent of retail sales, but volumes are 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. Amazon, based in Seattle, has harnessed all of these trends and is also behaving more like a traditional retailer. This autumn it expanded its white-labeling program, putting the Amazon brand on audio and video cables and other products, and introduced same-day shipping in seven cities.

The turn around
Amazon is expanding its slice of the retailing pie at an alarming rate. In the third quarter of this year, regular retail sales dipped by about 4 percent and e-commerce was flat. But Amazon’s sales shot up 24 percent, sending its shares soaring. More important, sales in Amazon’s electronics and general merchandise business, which competes directly with much of the selection in Wal-Mart stores, were up 44 percent. Wal-Mart does not break out Web sales, but it has been reported that its online business has revenue of several billion dollars.

The customer wins
The battle began with the companies cutting prices on books 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. The customer will win in this fight.

This entry was posted on Friday, November 27th, 2009 at 10:01 am and is filed under Uncategorized. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

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