Wal-Mart’s (WMT) continuing price war against Amazon (AMZN) has potential to revolutionize the publishing industry.
Or it may just turn into one huge publicity stunt.
Wal-Mart slashed prices of some highly anticipated new hardcovers to $10, which prompted Amazon to follow suit with the same price cut. Wal-Mart fired back with another cut down to $9, which Amazon matched again this morning.
Wal-Mart, by far the country’s biggest retailer, is aiming to increase its Web presence. The company doesn’t release stats pertaining to online sales, but this latest price war is obviously geared at drumming up publicity about its online offering as well as stealing market share from Amazon.
Wal-Mart CEO Raul Vazquez offered up some fighting words about the retail giant’s strategy. “If there is going to be a ‘Wal-Mart of the Web,’ it is going to be Walmart.com,” Vazquez tells WSJ. “Our goal is to be the biggest and most visited retail Web site.”
Opinions about the ramifications of this budding price war are split. From the Journal:
The price war sent shivers through the publishing world. Wal-Mart’s move, and similarly low prices for electronic books, may ultimately condition consumers to expect new titles to cost $10, a price that would force the publishing industry to re-scale its entire business, including the advances paid to writers.
“The endgame is rather scary for authors,” said one book executive.
Some big authors, however, are looking on the bright side. Dean Koontz, whose soon-to-be released novel “Breathless” is being discounted to $10 from $28, said that he thinks the discounting may prove a good thing for the authors involved.
“Any time people are fighting over your work it’s a good thing, especially when you’ve worked all those years hoping it would be fought over,” he said. “I don’t think this is going to be a long-term thing. Rather, it sounds like a promotional strategy designed to call attention to Wal-Mart’s decision to enter the digital marketplace more heartily than in the past.”
Credit Suisse analysts also believe Wal-Mart will “remain rational with its pricing and not make substantial cuts in the near future.”
Wal-Mart, which holds its analyst meeting next week, has indicated that it doesn’t plan for gross margin improvement over a long-term horizon, but Credit Suisse thinks its due to a number of issues other than price cuts, like more food and private-label sales.
Wal-Mart will likely speak to price leadership, but Credit Suisse thinks WMT will stay “cognizant of maintaining stable to slightly improving gross margin.”
Still, Amazon shouldn’t take this situation lightly. Silicon Alley Insider’s Henry Blodget says Amazon will ultimately come out a winner in this situation, if only for the reason that it can’t afford to lose.
“This is Amazon’s core business. It’s a sideline for Wal-Mart,” he writes. “[Amazon's] superior ecommerce distribution infrastructure, customer service, and Web site should allow it to maintain its position as the premium ecommerce destination.”
But if Wal-Mart takes this price war seriously, “it could be painful for Amazon for a while,” Blodget adds.
(Paul Ziobro contributed to this post.)
(Image courtesy of WSJ)
