Brick-and-mortar retailers have long feared Amazon's cost-cutting abilities. The online retail behemoth does not have to pay for sales staff or maintain vast, warehouse-like stores. With its ability to reach into your personal computer without physically crossing state borders, the company even avoids adding local sales taxes to its products. Lower costs usually mean cheaper prices, and big-box stores like Best Buy are shutting down stores as erstwhile customers flock to Amazon. However, a new study conducted by research group Kantar Retail shows that Amazon's prices aren't as cheap as everyone thinks they are. In fact, Amazon on average is a whopping 20 percent more expensive than its top rival, Walmart. Here, a guide to Kantar's findings:
How was the study conducted?
Kantar compared the prices of 36 brand-name goods offered by both Amazon and a Walmart superstore in New England. Shipping costs were not included, which means that Walmart performed even better than the 20 percent differential would suggest. Furthermore, Amazon was 13 percent more expensive than Walmart's online arm, the little-used Walmart.com.
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Why is Walmart so much cheaper?
While Amazon is growing at a blistering pace, Walmart still rakes in far more revenue, which gives it greater buying power to negotiate prices. Amazon also often relies on third-party suppliers to sell goods to consumers, which jacks up costs. Walmart is particularly competitive in the grocery category — a package of Bisquick pancake mix costs only $6.12 at Walmart, compared with a ludicrous $14.52 on Amazon.
What does that mean for Amazon?
It's a sign that Amazon "is slowly losing its pricing advantage," says Paulo Santos at SeekingAlpha. Amazon continues to benefit from lagging perceptions that it's the cheapest deal around, but when consumers catch up, Amazon's "revenue growth will be threatened."
Should Walmart still be worried?
Yes. "Five years ago, only about a quarter of Walmart's customers shopped at Amazon," says David Welch at Bloomberg. "Now half say they do." Customers simply trust that Amazon is going to offer them competitive prices, particularly in the entertainment category, where Amazon has excelled at slashing costs for books, movies, and music. Walmart is now trying to eat into that market, offering deep discounts on DVDs for the first season of Glee, for example.
Does Amazon enjoy other advantages?
Yes. Kantar found that Amazon was completely in stock for all the products tested, whereas 3 percent of the items were out of stock at Walmart's physical store. The number rose to 14 percent at Walmart's online store, which signals a big problem for Walmart, says Kantar. When customers think of online shopping, they immediately think of Amazon — not Walmart.com.
Sources: Bloomberg, The Huffington Post, Marketing Daily, SeekingAlpha
