Commentary by
Bill Bittner, President, BWH Consulting
An interesting battle began last week between the titans of brick and mortar and online retailing. Walmart announced it will be offering ten highly anticipated hardback books on its website for $10. After Amazon responded to match the $10 offer, Walmart.com raised the stakes by lowering their price to $9.
Walmart.com CEO Raul Vazquez told cnnmoney.com, the retailer was 'committed to providing our online customers with the lowest prices available.' Observers are left to wonder if this is an effort by Wal-Mart Stores to merely revamp the book channel or if there is a larger objective to build awareness of their online presence.
Wal-Mart is often cited as the most efficient brick and mortar operator. They are well known for their effective investment in IT applications to support their retail operations. Their effective implementation of warehouse automation and even their experiments in RFID all demonstrate an emphasis on efficient distribution. They have enjoyed the advantage of being able to offer their customers the 'immediate gratification' that having a physical presence enables. But Wal-Mart has also heard the footsteps as online retailers are becoming a larger force in the retail channel. This announcement is their way of telling everyone they are not going away.
Consumers are becoming more comfortable with online purchases and delivery. Broadband internet connections have become more common, providing quick response times with full video and audio support. This enables retailers to develop interactive experiences on their website or imbed reference to their online stores in popular virtual worlds such as Facebook, YouTube, etc. Creating a retail presence in the virtual world where more customers are spending their time is becoming critical.
Amazon has been the de facto leader in online retail. But although we tend to think of them as a technology company, Amazon has also developed an efficient fulfillment network with distribution centers strategically located all over the world. Their announcement of 'same day delivery' blunts some of the advantage of retail outlets.
So this sets up an interesting microcosm of the current retail environment as we watch these two companies who dominated their respective channels begin chipping away at one another. Who will win?
[Editor's note: Target has upped the ante and announced it will offer the same titles as Walmart.com on its website for a pre-sale price of $8.99.]
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[Author's commentary] While they still only represented 3.6 percent of total sales in the second quarter of 2009, the rate of increase in e-commerce sales is steadily rising. Their dollar volume continues to increase at the same time total sales volume is declining. This compounds the effect of customer moves to the virtual world.
I believe the Walmart move is much more than simply an attempt to sell more hardbacks. Book buyers are Amazon's traditional customer. By targeting their online store at Amazon's core customer, Walmart has made it clear they are going after them directly. This move will at least get those customers to visit the site and see what else Walmart has to offer.
As far as the bigger picture, I don't know that we'll ever see enough detail in the sales numbers to be able to discern the final impact. Brick and mortar operations are tough to operate. I would not blame some retailers if they started considering cutting back on physical locations and moved emphasis to their online offerings. Especially in highly concentrated areas, retailers can offer customers the ease of online shopping with the convenience of next (or same) day delivery.
[Author's commentary] While they still only represented 3.6 percent of total sales in the second quarter of 2009, the rate of increase in e-commerce sales is steadily rising. Their dollar volume continues to increase at the same time total sales volume is declining. This compounds the effect of customer moves to the virtual world.
I believe the Walmart move is much more than simply an attempt to sell more hardbacks. Book buyers are Amazon's traditional customer. By targeting their online store at Amazon's core customer, Walmart has made it clear they are going after them directly. This move will at least get those customers to visit the site and see what else Walmart has to offer.
As far as the bigger picture, I don't know that we'll ever see enough detail in the sales numbers to be able to discern the final impact. Brick and mortar operations are tough to operate. I would not blame some retailers if they started considering cutting back on physical locations and moved emphasis to their online offerings. Especially in highly concentrated areas, retailers can offer customers the ease of online shopping with the convenience of next (or same) day delivery.
