Price War: Walmart vs. Amazon
For years, Walmart has been unrivaled in its large basket of goods and its “Everyday Low Prices”. However, in the recent boom of online shopping, Walmart has fallen behind Amazon in sales. This has resulted in Walmart rigorously investing in their online operations and slashing their prices year-round in order to compete, with Amazon following suit. As both of these giant retail corporations rush to expand and serve as price leaders, prices may fall to dangerously low levels.
Amazon is well-known to be willing to damage profits for the sake of more sales at low prices, and Walmart now appears to be doing to the same. Last year, Walmart spent $1 billion in efforts to cut prices online, leading to a 50% growth in online sales. By November 2017, Walmart’s online prices were only 3% higher than Amazon’s, compared to the 5-12% difference in previous years. The graph from Reuter’s below displays Walmart’s prices for specific categories compared to Amazon’s in this past year.
While Walmart is doing better now thanks to its aggressive cuts, over time it may be difficult to keep prices consistently lower due to Amazon’ seniority in online retail and its advanced algorithm for price matching. To combat this disadvantage and differentiate itself, Walmart has recently placed a focus on increasing the convenience of shopping with free two-day shipping over $35 and in-store pickup. Furthermore, in 2016 Walmart bought startup company Jet for $3 billion in order to get a jump-start on its ecommerce customer base and gain a better understanding of the technology needed to run an online business. More recently, Walmart has entered a partnership with Google to increase online sales.
With online retail profits already “notoriously thin” (Forbes), this price competition does not bode well for other businesses. For Amazon and Walmart, it is clear that the quantity effect dominates the price effect; both corporations earn more total revenue by decreasing price and increasing sales. However, some companies may be unable to sacrifice their profits in such a way. Traditional stores have begun to suffer; stocks for JCPenney and Sears, for example, have already dropped 60%. Thus, the age of big retail online will likely cause a decline for businesses who are unable to create an online presence, differentiate themselves, or catch-up in the race for the lowest price.
For more examples of how retailers are trying to compete with Amazon, check out this short clip from Fox Business.
Bose, Nandita. “Exclusive: Cyber Monday Showdown - Wal-Mart Closes in on Amazon in Online Price War.” Reuters, Thomson Reuters, 27 Nov. 2017, www.reuters.com/article/us-walmart-onlineprices-amazon-excluisve/exclusive-cyber-monday-showdown-wal-mart-closes-in-on-amazon-in-online-price-war-idUSKBN1DR0I6.
Rogowsky, Mark. “Giants May Be Toppled As Amazon, Walmart War For Your Wallet.” Forbes, Forbes Magazine, 31 Mar. 2017, www.forbes.com/sites/markrogowsky/2017/03/31/giants-may-be-toppled-as-amazon-walmart-war-for-your-wallet/#668134ac6fe0.
Udland, Myles. “One Chart Shows Why Walmart Just Spent $3 Billion to Take on Amazon.” Business Insider, Business Insider, 8 Aug. 2016, www.businessinsider.com/walmart-vs-amazon-market-cap-2016-8.
Versaw, Rob. “The Ultimate Retail Matchup: Amazon Vs. Walmart.” Forbes, Forbes Magazine, 6 Oct. 2017, www.forbes.com/sites/forbestechcouncil/2017/09/15/the-ultimate-retail-matchup-amazon-vs-walmart/#4b74c4c227db.
Walmart's shares have soared 40% to a near record high of $100 thanks to robust growth in its online commerce operations. “Amazon vs. Walmart: The Rest of Retail Fights for Crumbs.” CNNMoney, Cable News Network, 27 Nov. 2017, www.money.cnn.com/2017/11/27/investing/cyber-monday-online-retail-stocks-amazon-walmart/index.html.