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The New Economy

Wal-Mart: Is Amazon replacing it as low-price leader?

Wal-Mart, the longtime price leader, can't undercut online retailer Amazon this holiday season, an analyst says.

By / November 30, 2010

In this Oct. 19 photo, the Wal-Mart logo is seen on a delivery truck in Springfield, Ill. The retail giant is seeing increasing price competition from Amazon.com.

Seth Perlman/AP/File

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For decades, Wal-Mart Stores set the standard for retailers: They were the most efficient at getting low-priced goods into the hands of consumers that nobody could beat them on price.

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Now, that price leadership seems to be moving to Amazon.com. As it did last year on Black Friday, Amazon set a price bar for hundreds of items that no one else could touch.

"Amazon is actually in a better position than Wal-Mart to be the price leader," says Kirthi Kalyanam, director of the Retail Management Institute at Santa Clara University in California, who has studied the two companies. "Amazon has a lower cost structure than Wal-Mart."

In one sense, that's comparing apples and oranges. Wal-Mart deals in bricks-and-mortar stores; Amazon is strictly online. Wal-Mart's clientele is also different less well-off and older than the online crowd that Amazon caters to. Online purchases represent only a small share of overall retail sales.

Still, these distinctions are likely to fade as more and more Americans turn to online shopping. That move online is in full view this holiday season.

While sales at major stores for Black Friday and the weekend were flat from last year, reports ShopperTrak, a Chicago-based research firm, online sales have posted double-digit growth from a year ago both for Black Friday and the following Cyber Monday, according to Coremetrics, an IBM-owned Web analytics company based in San Mateo, Calif.

“Cyber Monday came in as the biggest shopping day of the year so far,” said John Squire, the company's chief strategy officer, in a release.

For November and December, Forrester Research forecasts online retail sales in the US will reach nearly $52 billion, up 16 percent from a year ago and twice last year's growth rate. Overall retail sales will only grow about 2.3 percent, the National Retail Federation reports.

Recognizing the shift, Wal-Mart for the first time this year announced free shipping for roughly a quarter of the items in its inventories, says Fiona Dias, executive vice president of strategy and marketing for GSI Commerce, an e-Commerce consulting firm in Philadelphia. "The fact that they made shipping free at Walmart.com is fascinating."

It signals that the retail giant recognizes the growing importance of online sales, analysts say.

"That's why they're being so aggressive," says Professor Kalyanam. "They know someone else has gotten a little better than them."

Wal-Mart said Monday that traffic rose 30 percent on Black Friday compared with a year ago and 50 percent on Thanksgiving Day. But the company said it did not plan to release any other sales or traffic information about the big shopping weekend.

– Material from the Associated Press was used in this report.

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