Walmart steadily closing in on Amazon in online price war
Prices at Walmart.com are now only 0.3% more expensive than Amazon on average
San Francisco — Walmart Stores is within striking distance of matching Amazon.com’s online prices for the first time, a key milestone in its effort to regain the "low price leader" title.
Walmart has aggressively invested in making its prices more competitive against brick-and-mortar rivals since the start of 2017. Now, the shrinking gap is also becoming noticeable across a broad range of product categories online, according to a study conducted for Reuters, as well as interviews with pricing experts, retail consultants, vendors and company sources.
Prices at Walmart.com are now only 0.3% more expensive than Amazon on average, according to the study by retail data analytics firm Market Track, which analysed prices of 213 products in 11 categories over a period of 700 days ending November 7 2017.
By comparison, Walmart’s online prices were 3% higher than Amazon’s on average in the first 350 days ending November 7 2016, according to the study. In the popular wearables category, which include fitness trackers and smart watches, Walmart’s prices are 6.4% lower than Amazon in 2017 but 12.6% higher in the same period a year ago. For sports and outdoor products, Walmart is now 1.3% lower versus 3.5% higher a year ago.
These findings indicate that Walmart has managed to slash prices online across several product categories consistently, rather than with just temporary discounts during the year.
Consistent lower pricing is key to boosting sales throughout the year. On Cyber Monday, the busiest day of the year for internet shopping, online deals and temporary promotions were expected to overshadow pricing for both retail giants.
"We are committed to having online prices that meet or beat prices at other top sites," said Walmart spokesman Dan Toporek. He said for some items the retailer now displays two prices online to show shoppers when they can get a lower price by picking up their order in a store, but declined to comment further on their pricing strategy.
Amazon spokeswoman Kate Scarpa said nothing has changed in the retailer’s approach to delivering low prices to customers. "Amazon’s prices are as low or lower than any other retailer and we work hard for customers to ensure that’s true every day."
The consistent price cuts are one of several steps Walmart is taking to boost its e-commerce business, including expanding its online offerings, acquiring smaller online retailers such as Jet.com and offering free-two day shipping.
Walmart invested more than $1bn in 2016 to make its pricing more competitive, taking a hit on profit in order to offer lower prices online
Burt Flickinger, MD of retail consultancy Strategic Resources Group, conducted his own internal pricing study for clients in Texas in October. His data showed Walmart was closing the gap with Amazon in 2017 compared with a year ago when prices for a range of goods were 5%-12% higher at Walmart.
"What we have started seeing recently is Walmart lowering the gap with Amazon to a point where it is a photo finish," said Flickinger.
"Consumers can’t tell the difference anymore," he said.
Walmart invested more than $1bn in 2016 to make its pricing more competitive, taking a hit on profit in order to offer lower prices online, analysts said.
So far the strategy is paying off. Online sales at the world’s largest retailer grew 50% year-over-year in the most recent quarter, helping it post its strongest quarterly US revenue growth in nearly a decade. It now accounts for 3.6% of total US online sales in the 12 months to October 2017, up from a 2.8% share a year ago, according to digital research firm eMarketer.
Even with this progress, Walmart has a long way to go.
Amazon’s share of the US e-commerce market stands at 43.5%. About half of US households are estimated to have Amazon Prime subscriptions, Cowen and Co has predicted, making them less likely to comparison-shop.
But Walmart is also vying for the online business of other brick-and-mortar rivals, from Target to WayFair, which have been targeting shoppers who compare prices on search engine such as Google. Walmart could gain more market share at their expense through its price cuts, analysts say.
"Walmart’s objective here may not be to unseat Amazon as much as it is to convince (Walmart’s) loyal store shoppers it is also a low-price leader online," said Keith Anderson, senior vice-president of strategy and insights at e-commerce analytics firm Profitero.
Analysts and consultants estimate the retailer will have to fork out about $6bn over several years to maintain price parity with Amazon online and take on the rest of the retail pack.
These investments have already started to erode Walmart’s profitability. Operating margins fell for four straight quarters to 2.8% in the three months to October 31.
However, Walmart has a $6.9bn cash pile to tap in order to invest in online prices. Investors have so far shown no concern that the cost of online price cuts could weigh on Walmart’s announced $20bn share buyback programme; the company’s shares are up 1.5% since it reported stronger online sales on November 16.
What is more, the retailer said last year and again this October that it would slow down the rollout of new stores and divert that capital expenditure towards becoming more competitive online.
"Right now the better use of cash is to compete with Amazon and invest that in the business, because if anyone has a fighting chance to stand up to Amazon, it is Walmart" said Charles Sizemore, the chief investment officer at Sizemore Capital Management, which owns Walmart shares.