‘Chess’ game between Wal-Mart and Amazon expected to continue

Amazon and Wal-Mart are watching each other, responding to consumer input and strategically planning their next move, much like two skilled chess players where each is vying to take home the grand prize, said Keith Anderson, vice president of strategy and insights for Boston-based Profitero.

Seattle-based Amazon recently lowered the free shipping threshold to $25 for non-Prime members, compared to $35 offered by Wal-Mart. Amazon is dabbling in brick and mortar with a seamless convenience model. Wal-Mart also is experimenting with convenience formats offering customers mealtime solutions and a plethora of beverages to go.

Wal-Mart recently applied for a patent that will allow the retailer to track how products are used once consumers take them home. This technology is one up on Amazon’s Dash button because it will allow Wal-Mart to automatically reorder items from milk to baby diapers on behalf of the customer when the products start to run low. It also can track how frequently a product is used.

For instance Wal-Mart would be able to tell how often a person drives their car and estimate the wear of the tire tread. The same could apply for shoes or work boots. Having this knowledge would give the retailer the opportunity to prompt consumers to replace items showing wear and tear, while also offering suggestions and special promotions.

Amazon Dash is already in use and allows customers to push a button to reorder when the time is right. Wal-Mart recently added another feature to its mobile app to help customers who shop for groceries online or in stores with a simple reorder button. For customers who shop in stores and scan their receipts into the Savings Catcher App, those items appear online when the customer logs into Walmart.com. In markets where grocery pickup is offered, consumers build a shopping list by simply clicking on the items they want which is curated from recent shopping trips. The online basket can be filled much quicker and the order can be picked up at a location and time of their choosing.

Walmart U.S. e-commerce CEO Marc Lore said this change is about saving customers time when they order groceries online. The biggest complaint among online grocery users is the time it takes to place an order.

THE WAL-MART AND TARGET INTERACTION
Wal-Mart is also taking some plays from Amazon with the recent specialty retail acquisitions such as ModCloth, ShoeBuy and Moosejaw. Amazon owns Zappos, having also acquired Pets.com and Quidsi – formerly Diapers.com. Amazon is also meeting with suppliers about offering more proprietary branded items such as apparel and home furnishings. Wal-Mart already has numerous private label merchandise on everything from Marketplace salsa to Danskin active wear.

Anderson said it’s a too early to know how if Wal-Mart will have the patience and conviction to stick with product and process pilot programs for the long-term.

Anderson also said the tit-for-tat strategy is not new to retail. He said prior to Amazon’s rise, Wal-Mart and Target for 20 years played a similar chess game. He said Wal-Mart is trying lots of things, as they did against Target. Not too long ago Wal-Mart’s Project Impact was an attempt to declutter the stores, streamline merchandise offerings and look more Target. That proved disastrous for Wal-Mart and it took several years to unwind the damage.

“Some things just don’t fit and these retailers won’t follow in that case,” Anderson said.

For instance he said Amazon is dabbling in brick and mortar but there is no way it will ever have the store fleet that Wal-Mart does. Similarly Wal-Mart recently tried a subscription to guarantee free shipping for online orders, but that was short-lived because it’s not a good fit for Wal-Mart, who eventually just lowered the cost for everyone and abandoned the subscription model dubbed Walmart ShippingPass.

SEEKING A ‘DESTABILIZATION’ EFFECT
Anderson said Lore, now running the e-commerce business, brings an outside perspective and compelling point of view on Amazon, having worked there after he sold Quidsi/Diapers.com to Amazon in 2011 for $545 million. He said Lore will tweak Walmart.com where it’s necessary, but not force changes just for the sake of change.

Walmart.com wants to be a leader for the lowest cost online which is likely why they lowered free shipping fees and started giving pickup in-store discount. Anderson said Walmart.com doesn’t need to be No. 1 in e-commerce in terms of size, but it does need to be No. 2.

“Perhaps Wal-Mart thinks there are enough households that haven’t gone to online shopping and these recent perks will help the retailer pick up some of that untapped market. I don’t see the competition as clear cut-throat with Amazon,” Anderson said. “We are watching to see if Wal-Mart’s tactics have an impact on Prime members. Wal-Mart is big enough to have a destabilization effect on Amazon, but not detrimental given Amazon’s ability to innovate and move quickly.”

He said many of the moves made by Amazon and answered by Wal-Mart and vice versa are necessary in the near term to maintain their shopper base in the challenging retail environment. He said some economic models of online retailer’s today aren’t favorable but they are what consumers prefer. Anderson said Amazon has the cash it needs to continue to innovate and invest in giving consumers what they want.

Anderson expects to see Amazon and Wal-Mart masquerade as the other at times as they try and figure out what works. In the longer term he said Wal-Mart and Amazon will eventually grab their own identities and operational models. For Wal-Mart he said Lore looks to be given the latitude needed to make big moves.

“Lore seems to have a clear point of view what the opportunities are for Wal-Mart and he’s accelerating the action. It’s too early to see if it’s yielding any results but he does have a hypothesis on how Wal-Mart can win and that’s a positive for the retail giant,” Anderson added.

MODEL DISRUPTION
Clint Lazenby, consultant with #OnShelf, said Amazon and Wal-Mart are each trying to protect market share which is why the moves go back and forth like a chess game.

“With Amazon’s significant number of households enrolled as Prime members and knowing the advantages Amazon accrues from this puts them in a position of not wanting to give those shoppers a reason to question the perceived value their membership delivers. Therefore Amazon needs to ensure they are matching Wal-Mart on the visible/transactional costs the consumer is getting inundated with and can compare at checkout,” Lazenby said. “It suggests they will strive to match Wal-Mart move to move to stay aligned and keep shoppers satisfied and continue to convert and hold in the Prime program while continuing to bolt-on additional services in the future.”

He said Wal-Mart is likely exploring ways of disrupting the Amazon success model by offering interesting pricing options as they continue to leverage their store assets, consumer trust and supply chain capabilities.

“You also have to assume Wal-Mart is looking for ways to close the gap on what I call the Amazon value loop, referring to the all of the other value adds the shopper is getting as a part of their membership (music, video, etc). There are a number of unique strengths Wal-Mart has to disrupt this model and challenge Amazon with new and different value propositions for the shopper,” Lazenby noted in a statement.