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Dow Jones & Company, Inc. Reproduced with permission of copyright owner. Further reproduction or distribution is prohibited without permission.[Financial Analysis and Commentary]
What does Wal-Mart Stores have to gain from rocking Amazon.com's boat?
The world's largest retailer has sparked a price war with Amazon in books and DVDs, two of the Internet company's strong suits. While only a few items are being discounted deeply so far, both companies appear to be selling some products at a loss.
Yet even if the scope of discounts expands to more products, the battle is unlikely to cause Wal-Mart much pain. Online sales account for less than 1% of Wal-Mart's U.S. revenue, according to J.P. Morgan analyst Chuck Grom.
And the Census Bureau says U.S. e-commerce sales totaled $134 billion in 2008, accounting for 3.3% of total retail sales. That entire market is dwarfed by sales of U.S. Wal-Mart stores alone, which totaled $256 billion last year.
With online purchases growing in popularity, one interpretation is that Wal-Mart is trying to defend the rest of its turf. Electronics, for instance, are important for Wal-Mart's brick-and-mortar business while also being a big growth area for Amazon. But there is little sign of pressure on Wal-Mart. In fact, it increased its share of the flat-panel television market to 14.6% from 12.1% over the past twelve months, according to research firm Traqline, while Amazon's fell to 2.7% from 3.1%.
Amazon remains a long way from being a real threat to Wal-Mart and, given its pure online focus, has the most to lose from any price skirmish. Its bigger rival will hardly notice the margin compression from heavy discounting in its tiny online business. Wal-Mart should come away from any cyber-showdowns with, at the very least, a publicity boost for its mainstay business.
Credit: By John Jannarone and Martin Peers
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