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Walmart Strikes a Blow Against Showrooming

September 26, 2012


Big retailers remain concerned about the practice of “showrooming,” which involves customers coming into their stores to check out merchandise but then purchasing those items online through outlets like Amazon. In a post entitled The Battle Against “Showrooming” Continues, I noted that Target had announced that it would no longer sell Amazon’s Kindle. Stephanie Clifford and Julie Bosman reported that Target had “been trying to figure out how to stop Amazon shoppers from visiting Target stores to check out products, and then buy them online from Amazon.” [“Target, Unhappy With Being an Amazon Showroom, Will Stop Selling Kindles,” New York Times, 2 May 2012] Clifford and Bosman noted that showrooming was “a practice encouraged by Amazon.” Walmart has now joined Target by announcing it too will stop selling Kindles. Barney Jopson reports:

“Walmart is to stop selling Amazon’s Kindle tablets and ereaders in the latest move by a bricks-and-mortar retailer to cut links with the online behemoth threatening traditional chains. The decision by the world’s biggest retailer by revenue follows Amazon’s launch of an upgraded Kindle Fire HD tablet, designed to compete with Apple’s iPad in the crucial end-of-year shopping season.” [“Walmart to stop selling Amazon’s Kindle,” Financial Times, 20 September 2012]

Hayley Tsukayama reports that Walmart’s decision will take effect “after inventory is depleted and pending orders are filled.” [“Wal-Mart drops Amazon Kindle products,” Washington Post, 20 September 2012] Clifford and Bosman report that Walmart’s decision is “a sign of how seriously it views Amazon as a competitor in the consumer goods market.” [“Wal-Mart Is Deleting the Kindle From Stores,” New York Times, 20 September 2012] Jopson goes a step further, he writes, “The animosity of traditional retailers towards Amazon has become increasingly evident over issues ranging from a lack of sales tax on online purchases to consumers using bricks-and-mortar stores as Amazon ‘showrooms’.” He continues:

“Walmart, which is facing growing competition from Amazon and trying to expand its own online sales, will continue to sell iPads as well as tablets from Google, Samsung and Sony. The retailer said in a statement that it had ‘made a business decision to not carry current Amazon products beyond our purchase commitments and existing inventory’. It said: ‘Our customers trust us to provide a broad assortment of products at everyday low prices, and we approach every merchandising decision through this lens.’ The Kindle Fire has intensified the threat Amazon poses to Walmart – in categories from cleaning products to furniture – because the online retailer has developed it as a quicker and easier route for customers to buy other products from its site.”

Tsukayama writes that, after Walmart made its announcement, she conducted “a search for ‘Amazon Kindle’ and ‘Kindle’ on Wal-Mart’s Web site.” She reports that her search “delivered results for Kindle cases, accessories and competing devices, such as the Barnes & Noble Nook, but did not return any results featuring Amazon’s tablet computer or e-readers.” Jopson reports that Walmart’s decision, like Target’s before it, is largely symbolic. He explains:

“Sarah Rotman Epps of Forrester Research said Walmart was an important distribution channel for all electronics manufacturers, but predicted that its decision to stop selling Amazon products would have a ‘negligible’ effect on Kindle sales because Amazon had many other alternatives, including its own website. ‘From a financial standpoint, Walmart’s decision is not hurting Amazon,’ she said. ‘But, from a competitive stand point, it is certainly aggressive and may provoke retaliation.”

Epps told Clifford and Bosman that “the Kindle line, and most tablets, are only marginally profitable for retailers. … ‘A lot of them have had it with tablets other than the iPad,’ she said. ‘They’re not high-margin products, and other than Apple ones, no one is selling these devices in great volumes anyway. For Wal-Mart to drop Amazon is more of a symbolic blow rather than a substantive one.'” Although moves like the one announced by Walmart might be largely symbolic, Clifford and Bosman note, “If more retailers back away from selling the Kindle, Amazon will lose valuable physical display space that it cannot match with a Web site, exposure that becomes especially important during the holiday shopping season.” None of the reporters indicate, however, that other big retailers are about to join Target and Walmart and stop selling the Kindle.

Colin Gillis, a technology analyst for BGC Financial, told Clifford and Bosman that Walmart’s decision to stop selling Kindles may be more than symbolic. He claims “that by selling Kindles, Wal-Mart was ‘encouraging its customers to step into that ecosystem. Every time you pick up your Kindle, they’re trying to get you to buy patio furniture’ at Amazon, Mr. Gillis said. ‘If I were Wal-Mart, I certainly would not be encouraging my customers to go down the path of owning a Kindle and buying things from Amazon.'” Along that same line, Clifford and Bosman raise another interesting question, “Why retailers wanted to sell the device in the first place.” They write:

“One reason is that technology companies and retailers tend to have relationships that quickly turn from cooperative to competitive. ‘A lot of these technology companies look like they’re great friends in the beginning, and as they grow and add products, they move from friend to foe,’ said Fiona Dias, chief strategy officer of ShopRunner, an online-shopping service, and the former chief marketing officer of Circuit City. She said that Amazon was a clear example of this, and Google, with its Wallet mobile-checkout product and its recent decision to charge retailers to be included in product searches, was another. Even Apple, with its Passbook system that allows mobile payments, and the expanding list of items sold via iTunes, should unnerve retailers that sell its products, Ms. Dias said.”

Tsukayama reports, “Retailers have been particularly critical of the online marketplace and its contribution to the trend of ‘showrooming.'” Which is why Fiona Dias finds it puzzling that other large retailers, like Best Buy, Radio Shack, Staples, Office Depot, Tesco, and Waterstones, continue to sell Kindles. She calls the decision to continue selling Kindles shortsighted. “They’re thinking about today’s sales,” she told Clifford and Bosman. “Why support the guy that’s trying to put you out of business?” Tsukayama writes that large retailers “complain that customers often come into their brick-and-mortar stores to see or try out products that they’re interested in buying, only to leave and purchase the goods online, where customers often don’t have to pay sales taxes.” She continues:

“That practice gives online retailers an unfair advantage, David French, senior vice president of government relations at the National Retail Federation, told The Washington Post in July. ‘You’ve been doing all of the work, and then the online competitor steals the sale,’ French said. Amazon is supporting federal legislation that aims to create a national standard for Internet sales taxes, allowing states to simplify their tax codes and to choose whether to enforce sales tax collection on e-sales. Wal-Mart, Target, Barnes & Noble and other major retailers are also supporting the bill.”

One might wonder why Amazon would join its brick-and-mortar competitors in supporting a bill fostering the collection of sales taxes for online purchases. There are two primary reasons. First, the collection of online taxes looks inevitable and Amazon doesn’t want to be shut out from online sales in any state. Second, it has such an efficient logistics system that it believes it can compete even if the playing field is leveled a bit. Jopson writes, “Walmart executives tend to bristle at the description of Amazon as ‘the Walmart of the web’, but a string of Walmart efforts to compete in ecommerce have had only limited success.” That is why Walmart and Amazon are likely to remain fierce competitors.

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