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Wal-Mart Vs. Amazon: Price Wars

ASHLEY M. HEHER   10/16/09 07:20 PM ET   AP

Wal Mart

CHICAGO — Taking a page from its original playbook, Wal-Mart Stores Inc. launched a full-fledged price war with Amazon.com Inc. and a nation of book retailers, lowering online prices on certain highly anticipated hardback titles to $9.

The volley of discounts, which began Thursday when the retailer listed prices for some upcoming hardcover releases such as Dean Koontz' "Breathless" and Stephen King's "Under the Dome" at $10, was answered with a similar price cut by Amazon, the largest online bookseller. Then the two competitors lowered the prices even further to $9.

The book discounts, the latest in a series of aggressive online maneuvers by the world's largest retailer, could position the company to do to the online marketplace what Walmart stores did to local merchants decades ago.

"While it's the largest retailer in the United States, it's not the dominant online retailer in the United States," said Albert Greco, professor of marketing at New York City's Fordham University. "And this appears to be an attempt to increase its position in the online space."

The price war also is foreboding news to the large chain bookstores Borders Group Inc. and Barnes & Noble Inc., which have been squeezed by Amazon.com's discounting and a decline in their music business.

In the past seven weeks, Bentonville, Ark.-based Wal-Mart has racheted up the competition in several retail arenas, beginning with an Amazon.com-like announcement in late August that it would allow outside retailers to sell nearly 1 million items – from baby products to sports memorabilia – through its Walmart.com site.

Next came news that the low-price specialist would fill 90-day supplies of some 300 generic prescriptions by mail for as little as $10 and was launching its own cell phone plan.

And just this week, the company said it would begin selling health and beauty products online.

But it was the announcement about books – the base from which Seattle-based Amazon.com built itself into a powerhouse – that created the biggest stir.

The discounts, which also include Sarah Palin's "Going Rogue" and John Grisham's "Ford County," are a cut of 60 percent or more from cover prices, which means the two competitors are likely selling the titles at a loss.

Hardcover releases, which typically have a suggested retail price of at least $25, are generally sold to merchants with a wholesale price that's a 47 percent discount.

That means Grisham's book, priced at $24, costs most retailers about $12.72. It's not clear whether Wal-Mart, which some experts say sells as many as 1,400 titles in stores, might have negotiated a better price than that.

The company said the $9 prices won't be available in stores.

Walmart.com spokeswoman Amy Lester said its latest efforts to beef up its online discounts are part of the company's overall strategy to sell products at the lowest prices.

Wal-Mart has built its strategy on using its size and massive buying power to undercut competitors. But it sells enough products in enough categories to make up any losses on individual items it uses to bring people into its stores.

Wal-Mart is also cutting prices in half for 200 current best-sellers, including Dan Brown's "The Lost Symbol" and Kathryn Stockett's "The Help" in the new program called "America's Reading List."

Experts said selling certain books for such a low price could entice customers to browse other more profitable titles, or even other merchandise, from the company's Web site.

"Let's say you lose money on one item, you're making money on other items," said BMO Capital Markets analyst Wayne Hood.

There's no telling how long this week's price cuts will last, but experts said the two – which are increasingly competitors with each other in selling everything from batteries and books to dog food and diapers – could continue to duel.

The price cuts come at a time when Amazon.com and other sellers have been charging just $9.99 for e-books, a price that publishers worry is unrealistically low. The reductions also make it increasingly hard for independent sellers, which can't afford such large discounts, to compete for the most popular books.

So long the biggest threat to independent booksellers, Borders and Barnes & Noble saw their stock prices drop Friday, down as much as 4.7 percent and 6.8 percent, respectively, before recovering somewhat.

"They can't bring (prices) that low," said Michael Norris, a senior analyst with Simba Information. "As a whole, it's very hard for traditional bookstores, large or small, to compete with this kind of nonsense."

Amazon shares dipped 76 cents to $95.25 in afternoon trading Friday, while Wal-Mart shares rose 38 cents to $51.33.

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Filed by Jessie Kunhardt  |