The Gloves Come Off At Amazon and Wal-Mart
Ali had Frazier. Coke has Pepsi. The Yankees have the Red Sox.
Now Wal-Mart, 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 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. 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 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 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 that they will decline 1 percent, to $437.6 billion.
Of course, Wal-Mart and Amazon are fundamentally different companies, and for now, at least, Amazon poses little immediate 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 relative 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.
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 smartphones 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.