Walmart has just announced that it will no longer sell Amazon’s tablets after it has sold its current inventory. This announcement by Walmart follows Target’s action several months ago that they would not sell Amazon products in the future. The low margin products like Kindle and Kindle Fire tablets were deleted from future purchases as competition is getting sharper and retailers are unwilling to support the growth of an arch rival. For Amazon it was a way to gain more readers of their ebooks which carry a better margin than the hardware. Competitors have to become more aggressive in order to maintain their growth. I am surprised that Best Buy and Radio Shack will continue to sell Amazon tablets given the challenges they face from online retailers like Amazon. As I have written about in previous posts, both of these retailers need new ideas to survive.
Competition has become more intense this year. We have noted a slowdown of spending by consumers at every price level. Walmart and the other discounters have to fight to gain or retain market share with proprietary products that are not available to their competition. This year is the 50th Anniversary of the first stores of Walmart, Target and Kmart. They opened their first units within months of each other. At the time discounting had been done by some small stores and E.J.Korvette, which offered free membership to their customers in order to avoid being cited under the Robinson-Patman Act which restrained retailers from discounting.
In the 1960’s the government ceased enforcing the Robinson-Patman Act which was clearly bad for consumers. This opened the door for businessmen like Sam Walton (Walmart), Harry Cunningham (Kmart) and John Geisse (Target) created concepts that had low price and offered little service. The chains grew through rapid expansion and acquisitions of other stores. The parent companies of Kmart and Target were large retail chains – S.S.Kresge, the parent of Kmart, was a large 5 &10 cent variety chain with over 700 stores in 1962, and Dayton Corp., the parent of Target, had three department stores in the Minneapolis area. Walmart’s Sam Walton received basic training at J.C.Penney and then operated a Ben Franklin variety store. He then opened a Walton’s Five and Dime store in Bentonville, Arkansas. His first discount store, Wal-Mart Discount City, was opened in Rogers, Ark.
The advent of discounting brought many other stores into the competitive arena, stores like Venture (May Department Stores), Ayr-Ways (L.S.Ayres), Bradlees (Stop & Shop), Woolco (Woolworth), Ames, Caldor, Zayre, White Front and many others. Most failed because of poor management and ineffective operating systems. However, all discounters offered lower prices on many national brands in all classifications. Discounters soon found that even lower prices were being offered by catalogue showrooms retailers and Wholesale Clubs. Even today, Costco and Sam’s Club aggressively undersell discounters but customers must pay an annual membership fee either as resellers or as individuals.
The growth of e-commerce has been a major new competitive factor for all retailers – especially for major discount chains. Amazon, like Walmart, has understood the importance of logistics to success as a retailer. Amazon has built a sophisticated distribution system that allows it to deliver merchandise to customers very quickly. The company is now experimenting with same day delivery. The industry believes Amazon is planning to build some stores which would be direct competition to brick and mortar retailers like Walmart, Target and Kmart. On the other hand, EBay is almost like a mall, with many vendors having virtual doors. They not only compete with brick and mortar retailers but also with other retailers offering similar merchandise on the web.
Competition is a way of life in the retail industry. Old outdated ways of retailing are eventually replaced by new more modern formats. The online retailer is now challenging the biggest brick-and-mortar discount retailers who replaced the variety stores and marginalized the traditional department store. When retailers compete, the consumer wins.
