This past week brought out a series of counter salvos in an apparent price war that broke out between Amazon.com and Wal-Mart.com. A posting appearing in SiliconValley.com summarizes the week’s events, noting how both outlets are now offering a select group of ten upcoming book titles for under $10. These events are being characterized as the first salvo in positioning the predominant holiday book sales online shopping destination.
With the opening salvo’s positioning of these books at below publisher cost, this could be a very harmful “game of chicken”. All of this is also on the heels of stepped efforts by Amazon, Google, Sony and others to position e-book readers and content as attractive gifts for the upcoming holiday season.
I’m going to offer my own supply chain management and sales channel disruption perspectives, specifically, how I would handicap the potential winners and losers after the first initial salvos.
If this was a horse race, and I was the handicapper, I would tend to favor Amazon with the highest odds for winning endurance. The reasons come down to proven capabilities in online commerce, order fulfillment and supply chain infrastructure capabilities. More evidence of that fact came later in the week with Amazon’s announcement that it would offer select same-day shipment delivery services for select cities.
Amazon continues to navigate itself through good economic times and bad, with an ability to adapt its online commerce business model to the current needs of the market. In the latest June quarter, Amazon reported a 14% increase in net sales and a free cash flow increase of 89%, to $1.54 billion. While operating income declined 27%, the company is still profitable, which is a condition that many large-scale retailers cannot match.
One could also certainly argue that Wal-Mart has been just as successful in overall financial terms. There is, however, one very important difference, which reflects more on the core competency of each company’s supply chain network. Amazon’s network has been designed and tuned to support nothing but online commerce. Wal-Mart, on the other hand, may be in a situation where marketing strategy has not been grounded in current supply chain capability. We all know and admire Wal-Mart’s supply chain prowness in supporting a brick-and mortar retail network. Not many companies have proven success in their ability to pull-off a high volume sales fulfillment business model for both brick and mortar and online commerce.
What about the potential casualties of this type of war? Industry observers point to book authors as the targets of collateral damage. I agree. Add existing book retailers to the collateral damage list as well. Retailers such as troubled Barnes and Noble, or Borders can ill afford to face an upcoming holiday season with customers expecting aggressive discounting or endless bargains.
The real victims of this book price war are going to be the bystanders, namely the classic book retailers and longer-term, the individual authors. That is the real tragedy of this affair. Wal-Mart gets to boast, Amazon reaps the benefit, and yet another set of victims succumb to the perils of win-lose marketing destruction.