Amazon Just Got Fired
Chris is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
From time to time I like to hop online and compare the user experience of different retailers’ websites. I have found that it gives a pretty good indicator of how online sales are doing between retailers.
Recently I spent some time looking through Wal-Mart’s (NYSE: WMT) website – and it looked remarkably similar to Amazon’s (NASDAQ: AMZN) homepage. The left pane of both pages feature a links section; a search bar remains prominent in the middle of both pages; and the wide open space filling the middle body of both homepages is filled with each firm’s featured items.
Amazon and Wal-Mart have been going head-to-head in the battle for retail sales. Wal-Mart now has a “HomeFree” feature, which gives customers free shipping if their orders exceed a certain dollar amount. It sounds just like Amazon’s “Free SuperSaver Shipping” on orders over $25. It also reminds me of Amazon Prime, where customers pay $79 per year and get unlimited two-day shipping, plus video content tossed in.
The feud just exploded, and Wal-Mart decided to stop stocking Amazon’s Kindle product line. Amazon got fired.
Stop “Showrooming”
Wal-Mart was actually not the first company to sack the Kindle family. Target (NYSE: TGT) stopped carrying the tablets in May, after it realized that users were using their Amazon apps and Kindles to compare prices of items that they found in retail stores to Amazon’s online prices. The term is called “showrooming.”
Showrooming is important to Amazon’s profits, because the company breaks even or takes a loss on the initial Kindle sale. Amazon then makes up the loss when the user continually uses the device. Basically, Amazon profits by promoting ads and by cross-selling its other products, a practice that harms other retailers.
And of course Amazon has a history of agitating retailers. Last Christmas, Amazon pushed its Price Check app, which lets users scan the barcodes of items found in stores like Wal-Mart and Target. The smart phone then compares the price of the scanned item to Amazon’s price. Of course, retailers didn’t take too kindly to that.
And because Amazon has historically not collected sales tax, a practice that is starting to change, customers have typically purchased large lots from Amazon instead of traditional retailers.
Referring to Wal-Mart, one analyst commented: Amazon “is a little bit of a Trojan horse …. They should have made this decision to not carry the Kindle a long time ago.”
While Amazon is likely sulking, its tablet competitors are licking their chops.
Major Beneficiaries
Two companies have an open door to step in and sell their products in Amazon’s stead. The first is Barnes and Noble’s (NYSE: BKS) Nook, an e-reader. Barnes and Noble has a major selection of books, but it was left in the dust by Amazon’s constant innovation. Barnes and Noble’s most basic e-reader costs just $99.
Also, Barnes and Noble sells a color tablet, the Nook Color. This tablet costs just $149 and comes with Wi-Fi and other features. I have used the device and have found it to be a classy machine. Of course it’s no iPad, but it definitely serves its purpose. Barnes and Noble has an opportunity to up its marketing to boost its e-reader sales in Wal-Mart and Target stores. Ideally, the sales boost will lead to more sales from its online bookstore as well.
Next, no Amazon means that Google’s (NASDAQ: GOOG) Nexus 7 has a chance to prosper. Google decided to enter into the tablet space by launching its $199 device, which has been featured on Google’s homepage.
Google’s device is a chance for it to get its foot in the door of the tablet market. The low-priced device features nine hours of HD video playback and 10 hours of both web browsing and e-reading. More specs on the device can be found here.
Here is why Google has a good chance at success. Sometimes Christmas shoppers buy hot items, even if they don’t know brands all that well. For example, a grandmother may want to get her 9-year-old grandson a tablet, but doesn’t want to drop $399 on the iPad 2. She sees the Nook, but Google’s Nexus looks better. She’ll buy that. In essence, Google benefits from not having Amazon around as a competitor.
In conclusion, Wal-Mart’s decision to pull Amazon’s Kindle products from its stores is a competitive threat to Amazon’s “showrooming” technique. The battles, however – both online and offline – will only intensify as time continues. Will Wal-Mart launch an all-out e-store? Will Amazon open the physical retail centers that it is testing? Only time will tell.
In the short-term, however, the firms are duking it out over sales volume. Earlier in the article I mentioned the similarities in website design from the two big retailers. However, there is a major difference between each firm’s featured items: Wal-Mart’s homepage features toys. Amazon’s, however, features Kindles. Is Amazon’s featured section one more knock against Wal-Mart, hoping to prove that it can go it alone and sell the Kindle all by itself?
In my opinion? Yes.
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ChrisMarasco has no positions in the stocks mentioned above. The Motley Fool owns shares of Amazon.com and Google. Motley Fool newsletter services recommend Amazon.com and Google. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.
