November 7, 2009

Wal-Mart Challenges Target, Amazon In DVD Price War

Wal-Mart Stores Inc. kicked off another price war on Thursday, cutting online preorder prices of some upcoming DVDs to $10, while rivals Target and Amazon scrambled to follow suit.

The move follows Wal-Mart's price reductions on books in October, and is the latest salvo in the company's ongoing campaign to be the low-price leader on the Web as well as in stores.

The Bentonville, Ark.-based retailer said Thursday that it would lower the online prices of new DVDs to $10.  Amazon responded by reducing some of its DVD prices to $9.99, after which Wal-Mart slashed its DVD prices to $9.98 Friday morning.

Target joined the fray on Friday morning as well, as all three companies boosted their offerings with free shipping for DVDs.

The goal behind such steps is to generate higher volume, said BMO Capital Markets analyst Wayne Hood, who told the Associated Press that retailers such as Wal-Mart and Target can afford to lower their prices due to their low-cost distribution models.

However, other retailers such as Best Buy Co., Barnes & Noble Inc. and Borders Group Inc., have not joined in on lowering their prices. And while that may seem to cost them sales, that might not be such a bad thing, Hood said.   Indeed, trying to undercut Wal-Mart, with its enormous scale and buying power, is a losing game for some, he explained.

Wal-Mart, which generated more than $400 billion in sales last year, sells a wide variety of products.  This allows the company to compensate for losses on individual items that it uses to lure customers into stores or to Walmart.com.

"On an everyday basis, customers expect Wal-Mart to be the benchmark or standard for pricing," Hood told the AP.

Wal-Mart has been aggressively trying to build its online market share. The DVD discounts and last month's book discounts are part of the company's strategy to attract shoppers to its online store.

Wal-Mart's book price war in October included online preorder prices as low as $8.98 on titles such as "Under the Dome" by Stephen King and "Ford County" by John Grisham. 

Although Wal-Mart, Amazon and Target are still discounting books, prices have gone up as books in the price war have come to market.

Wal-Mart's DVD price reductions follows the company's announcement last month that it would reduce prices weekly on top-selling items, and maintain those lower prices throughout the holiday shopping season.    Wal-Mart also plans to offer more than 100 toys at $10 during the holidays.

In addition to the extra discounts, Wal-Mart has tried to attract online customers by massively increasing its product offerings.  In late August, the company said it would allow outside retailers to sell some 1 million products on Walmart.com.  The company said in October that it would begin selling health and beauty products online as well.

Shares of Wal-Mart's stock fell 3 cents on Friday, closing at $51.25.  Shares of Amazon.com were up $5.59, closing at $126.20, while shares of Target were down 20 cents to $49.50 during after hours trading on Friday.


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