Cage Fight '09: Wal-mart vs. Amazon

Media Mediation Number 8

It's Black Friday.

For some that means waking up at midnight to go line up outside of stores, preparing to storm the entrance at 5 a.m. when they open to get the newest craze for a few less dollars. To boost the economy, retailers have opened their doors even earlier this year, and set their prices even lower. The retailers appeal to the reptilian brain, with "buy it now or waste your money later" mentality. For Wal-mart and Amazon, Black Friday means competing for the lowest prices around this holiday season.

Wouldn't you rather purchase your gifts online, sitting on your couch? Or from you Blackberry while enjoying a post-Thanksgiving family day, instead of trudging through overcrowded stores and shopping malls?

Of course you would, and retailers Amazon and Wal-mart know this. The two conglomerations are currently pitted against each other in a "price war," fighting to "the death" to grab customers during a recession filled holiday season.

The whole thing started when Wal-mart discounted ten of their best selling novels to a mere $10.00, and Amazon (who services their clients online, versus Wal-mart mostly in store based sales) matched the sale. When Wal-marts prices sank to 8.99, Amazon surrendered. The two retailers then extended the battle to other areas of the market, lowering prices on DVD's, and the popular Christmas gift, Easy Bake Oven. Wal-mart and Amazon also used bribery to lure in consumers, offering free gift cards with specific purchases. The very existence of these retail behemoths and their ability to sell goods far below the value is an example of the economic shift that is present in our culture.

Is this really about offering the lowest prices, or getting the most customers?

No. In fact, "Since wholesale book prices are traditionally around fifty per cent off the cover price, and these books are now marked down sixty per cent or more, Amazon and Wal-Mart are surely losing money every time they sell one of the discounted titles. The more they sell, the less they make. That doesn’t sound like good business." No, that doesn't sound like good business, it almost sounds like a PR move to advertise Wal-marts ability to compete in the digital marketplace, a skill which is shaping up to be a neccessity for successful retailers.

The New York Times astutely pointed out "Though online shopping accounts for only around 4 percent of retail sales, that percentage is growing quickly. E-commerce did not suffer as deeply as regular retailing during the economic malaise, and it is recovering faster than in-store shopping. People are also shopping on smart phones and from their HDTVs." In regards to the book market, "By 2008, online booksellers controlled between 21 and 30 percent of consumer book sales" (336). In this age of convergence, shopping online is more convenient than offline, and when buying from online retailers such as Amazon, you don't have to pay sales tax.

But Wal-Mart and Amazon's sales are not the most important part of the story here. The media is advertising this "price war" as a benefit to consumers, but if they are consumers that support small business, I don't see how that's possible. "From a game-theory perspective, price wars are usually negative-sum games: everyone loses. A recent study found that, if competitors do match price cuts, industry profits could get cut almost in half."

And what does cutting industry profits in half do to small business owners, who are already struggling to compete with big box stores like Wal-mart? "About 19,000 outlets sell books in the United States," what will happen to those that cannot afford to sell the books at below their value, like Amazon and Wal-mart (334)? According to the Wall Street Journal, "Diana Abbott, manager of the Bookworm, an independent bookstore in Omaha, Neb., said that some independents will likely lose some business on the titles involved. "We've been fighting deep discounting for a long time, although $10 is obviously an extreme," said Ms. Abbott. "But there is a strong element of loyalty to independents.... We’ll survive this.""

But what about the publishing industry, will it survive? With so many conglomerations offering the same ridiculous deals on top-selling books (Sears and Target have joined in the "price war" as well), will consumers come to expect books to cost less? The fact that large retailers like Wal-mart and Amazon can do this seems like an extreme example of a Political shift. Time states, "The industry is so concerned about the battle that the American Booksellers Association has asked the Department of Justice's antitrust division to investigate the retailers' pricing practices. "Amazon.com, Wal-Mart and Target are devaluing the very concept of a book,""

How did this story suddenly make it onto the pages of Time, The Wall Street Journal, NY Times, and other sources seemingly instantaneously? There are price wars going on all the time, especially between online and in store retailers. The whole advantage of shopping online is that there are usually cheaper prices than in the store. In my opinion, this is an obvious case of Wal-mart's PR team pushing a story on the American public, and capitalizing on timing of the consumerism of the holiday season.