Wal-Mart and Amazon Going Toe-to-Toe

Wal-Mart appears to have thrown down the gauntlet to Amazon. As Amazon has expanded into numerous categories beyond their original book niche, they have been infringing on Wal-Mart’s turf. So the Bentonville gang has responded by attacking Amazon’s turf, cutting prices on pre-orders of some upcoming bestsellers on walmart.com to $10. As their CEO said, “If there is going to be a ‘Wal-Mart of the Web,’ it is going to be walmart.com.”

Amazon responded by cutting their price on the same books to $10, at which point Wal-Mart went to $9, and was again matched by Amazon. (As an aside, this may be a bit of confirmation of our item last week, about Wal-Mart possibly planning to cut margins in the coming year).

The Wal-Mart/Amazon battle is interesting in itself, but it also calls to mind an African proverb: “When elephants fight, it is the grass that suffers.” Playing the role of grass in this scenario are publishers and independent retailers (and maybe even Borders and Barnes & Noble).

At the moment, the prices Wal-Mart and Amazon are charging on these books make them loss leaders. Publishers normally sell to their customers at half the list price. Thus, Sarah Palin’s new book, which is one of the books being discounted and is listed at $28.99, will result in a loss of $5 or so on each copy Amazon and Wal-Mart sell.

But without bestsellers to pull in the customers, bricks and mortar bookstores will suffer, losing not only the sales on those popular books, but also the supplemental sales they might have made from browsing customers. Independent bookstores have been suffering for years, Borders has been in deep trouble recently, and even B&N had its sales drop 5% last quarter.

Publishers are concerned that this price-cutting, added to the effect of e-books (which are regularly priced at $10 or so) and the growing popularity of e-readers, will cause consumers to balk at paying full price for books, eroding their margins. It seems like a reasonable concern.

Poll Question: Who will suffer most from the Wal-Mart/Amazon battle?