Walmart Targets Amazon. Finally. But Does Amazon Care?

Walmart has long targeted local retailers' pricing, undercutting them to establish dominance in whatever market they entered. This has sometimes skirted the laws against predatory tactics, but one has only to look at Walmart's success to understand that, by and large, they have succeeded.

The problem now is that the rise in raw material costs is driving up prices everywhere, making Walmart often too expensive for its base customer whose income has not risen for years on an inflation adjusted basis.

As a result, Walmart has not delivered growth in its stores since 2012. It is, not surprisingly, now targeting competition with Amazon and other online merchants as a way of re-igniting sales. This is especially crucial as the following article explains, because almost 44 percent of shoppers plan to do some or most of their holiday shopping online this year.

The question is whether it will make much difference. Amazon has long declared that it is investing for the future and Wall Street can go stuff a stocking. It is not afraid of a little price competition, having had some experience at that game itself. And it has anticipated Walmart's eventual serious entry into ecommerce for some time, being a bit surprised, in fact, that it has taken this long.

This is truly going to be a battle of the titans. And the great thing is that you can pick your own bad guy. JL

Shelly Banjo reports in the Wall Street Journal:

Wal-Mart Stores Inc. is testing a program to match online prices from rivals such as Amazon.com Inc. this holiday season, a move that could make the discounter more competitive but cut into earnings.

Wal-Mart executives are discussing whether to go ahead with the price-matching program, which would expand its one for local brick-and-mortar competitors, according to spokeswoman Deisha Barnett. Under consideration is how much Wal-Mart might lose if the program were to go nationwide, people familiar with the matter said.
Ms. Barnett said the company’s focus is on taking care of customers and said store managers have had discretion to match certain online prices for customers for some time.
Wal-Mart has long resisted matching online prices, even as competitors Best Buy Co. and Target Corp. adopted the practice to keep customers from “showrooming,” or browsing brick-and-mortar stores but subsequently making the purchases at online competitors.
But Wal-Mart is fighting to keep shoppers coming to its stores and to regain its reputation as a low-price leader, which faded in recent years as dollar stores and online competitors became more aggressive. A basket of goods at Wal-Mart was 1.2% cheaper than the same items at Target, the smallest price gap since 2012, according to a June study by consulting firm Kantar Retail.Gearing up for the holidays, Wal-Mart said it would eliminate shipping fees and guarantee delivery by Christmas Eve for 100 popular products including Disney Frozen toys and Lego products, but wouldn’t drop shipping fees entirely.
On Saturday, the retailer kicks off its holiday discounts in stores on 20,000 products like the Xbox One. On Monday, it plans to pull forward 15 online “Black Friday” specials on products such as an Element 40-inch HDTV and NutriNinja Pro Blender.
“As soon as they put away their Halloween costumes, our customers start prepping for Thanksgiving, buying Christmas trees and shopping for gifts,” said Wal-Mart U.S. chief merchant Duncan Mac Naughton.
Losing its pricing edge makes it more difficult for Wal-Mart to draw customers based solely on price, according to Laura Kennedy, who conducted the Kantar study.
Online, Wal-Mart has become more competitive with Amazon, according to research from Wells Fargo and pricing firm 360pi. In the three months through February, Wal-Mart’s prices were on par with Amazon’s. In August, Wal-Mart’s prices dropped to nearly 10% lower than those of Amazon, where prices have been increasing, the research found.
Price matching comes at a cost but can boost a retailer’s reputation. At Best Buy, the program resulted in a hit to margins, according to Janney Montgomery Scott LLC analyst David Strasser, who said the move was ultimately smart because it “put a stake in the ground that it was a serious competitor to Amazon and other online retailers.”
Best Buy Chief Executive Hubert Joly last year said he thought the cost of price matching eventually would come down as the gap between prices in stores and online narrowed.
The stakes are set to rise ahead of the holiday shopping season, when retailers rake in more than a fifth of their sales for the year. Target announced recently that it would eliminate shipping fees for all online orders from Oct. 22 through Dec. 22, while Amazon announced early access to holiday deals for its Prime members.
Online shopping is expected to snag a greater share of holiday budgets. Consumers plan to do more than 44% of their holiday shopping online this year, up from 31% in 2009, according to the National Retail Federation.
Wal-Mart is struggling to attract shoppers to its supercenters. The retailer hasn’t booked sales growth in the U.S., excluding new or closed stores, since 2012. The company is investing heavily in e-commerce and smaller, conveniently located stores. It also is trying to reclaim its pricing advantage.
To that end, in April it rolled out an online and mobile tool called Savings Catcher, which analyzes shopper’s receipts and refunds price differences found between Wal-Mart’s prices and those of local competitors.
“We’re doubling down to make sure that we show price gaps across the marketplace,” Mr. Mac Naughton told investors recently, noting that nearly 3% of receipts are now submitted through the Savings Catcher tool.
The tool gives Wal-Mart greater visibility into how its prices compare with rivals. Armed with that information, analysts say Wal-Mart can better pressure suppliers for lower prices.
Separately, in Japan Wal-Mart said it plans to close 30 underperforming stores and remodel 50 others as it aims to reclaim sales growth in what has been a difficult market for the retailer. Wal-Mart entered Japan in 2002 and operates 434 locations in the country. It will also increase its capacity for online grocery home delivery in Tokyo, where demand for the service is growing.