Everyday Low Prices: Technology Turns the Wheel of Fortune
Walmart’s story consists, above all, of “everyday low prices” deriving from the enduring advantage of comprehensive cost leadership.1 This story plays out anew with new ideas, methods,
and technologies that improve efficiency, currently exemplified in the e-commerce business of
Amazon. Just as Walmart’s across-the-board cost leadership enabled that company to catapult beyond discount department stores, so also Amazon’s newer, better technologies and methods for
driving down cost have propelled that company into the vanguard of cost-leading retailers.2
Whether Amazon successfully usurps Walmart in retailing will depend on whether the ubiquitous
Internet giant can control its rising costs3 to maintain the enduring advantage of cost leadership in
its current business and whether Amazon keeps apace as new ideas, methods, and technologies disrupt adjacent markets.
Walmart opened its first store in 1962 in Rogers, Arkansas, with one clear battle cry: “The
Lowest Prices Anytime, Anywhere.”4 Sam Walton, the store’s eponymous founder, determined to
make low prices sustainable by spreading fixed costs over high-volume sales. Walton employed various tactics to support the image of “everyday low prices”, including loss leaders in high-visibility
locations in the store.5 Early operational strategies—stores in small towns (where real estate costs
less) with distribution warehouses no farther than a day’s travel by truck—drove down costs.6 Immediate reputation for low prices enabled Walton’s Walmart to rely on not expensive advertising
and marketing but free word of mouth.7 Finally, by devolving responsibilities and rewards to managers and employees, the company built loyalty among “associates” that enabled driving down payroll costs without driving away the workforce.8
For success during rapid expansion in the 1970s and 1980s, Walmart could thank Walton’s
innovative exploitation of new ideas, methods, and technologies, such as combining merchandise
and groceries under one roof (to spread fixed costs further while winning more of customers’ paychecks) and streamlining communication and distribution (to identify and eliminate inefficiencies
along Walmart’s entire value chain).9 As of January 2014, Walmart had grown to more than
11,000 locations in the United States and 6,000 locations abroad,10 generating nearly 470 billion
dollars in revenue and 17 billion dollars in net income.11 Walmart continues to employ its characteristic strategies and tactics, such as loss leaders, to compete in the evolving marketplace.12
Amazon launched to the world on July 16, 1995,13 with a deliberate strategy of pricing below cost.14 To minimize cost anyway, founder Jeff Bezos focused on the five products he thought
most suited for e-commerce in that early period: compact discs, computer hardware, computer
software, videos, and books.15 Within the first month of operation, Amazon had sold books both
domestically—in all 50 U.S. States—and in 45 countries abroad.16
Amazon built success on the same “everyday low prices” strategy that Walmart had pio17
neered but one-upped the brick-and-mortar retailer by eliminating the cost of stores altogether,
instead shipping directly to customers. Amazon improved on Walmart’s idea of “image” products
to lure customers to the store by tailoring front-page recommendations to each customer.18 Just as
Walmart had led on cost and price without sacrificing customer satisfaction, Amazon accomplished the same feat through innovative use of information technology.19 Then, in 1996, much as
Walmart had earlier forged profitable partnerships with suppliers to create a truly two-sided market,20 Amazon launched the “Associate Program” in 1996 to enable third parties to channel Amazon’s sales21 and, in 2001, cemented deals with known retailers, such as Target and Toys R Us, to
offer their own products on Amazon.22
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Everyday Low Prices: Technology Turns the Wheel of Fortune
On its own, Amazon grew tremendously, but also as Walmart had done with small retailers
established in regions where Walmart did not already exist,23 Amazon acquired independent Internet retailers whose offerings complemented Amazon’s.24 Thus Amazon, like Walmart, employed general corporate strategy of growing alternately from the inside and by acquisition in the
ongoing quest to offer the lowest prices without sacrificing customer satisfaction.
Walmart disrupted the brick-and-mortal retail market by launching its first stores far outside of cities, in which discount department stores had thrived. When Walmart’s direct competitors finally realized that Walmart posed a threat, the opportune time to respond had already
passed. Since then, the wheel of fortune has turned against Walmart: The retailer’s customers
have discovered Amazon, which has built substantial advantages and a commanding lead in online
retailing and direct delivery.25 Walmart’s competitors had largely failed to see Walmart as a competitor before the purveyor of “everyday law prices” caught and surpassed the higher-cost retailers;
now, Amazon has jumped Walmart from an analogous blind spot.26 Though, with respect to the
convenience of physical store locations, Walmart offers customers more convenience than does
Amazon, consumers’ tastes are changing, and Walmart lags behind Amazon in the exploding world
of e-commerce.27 The time for Walmart to respond to Amazon may already have passed. But not
necessarily.
Rather than trying simply to keep pace with Amazon, Walmart should look to ride the new
waves of technology that Amazon might miss,28 particularly wherever Walmart can exploit its existing assets.29 Promising leads include in-store pickup for online orders, same-day delivery,30 express
boutiques and outlets,31 and perhaps even automated delivery by “drones”.32 Amazon must continue to enhance the convenience and value of online shopping. The greatest—and nearest—opportunity for the quicker of Walmart and Amazon may lie in fresh foods: Delivery of fresh foods will
likely disrupt the grocery market as Walmart and Amazon have disrupted retail. Walmart already
sells fresh foods in its stores, and Amazon has recently launched AmazonFresh.33
Walmart built its success on “everyday low prices” sustained through cost leadership, which
new ideas, method, and technologies make a moving target. Walmart and Amazon can trust that
the generic strategy of profitably cutting prices by cutting costs will continue to work.34 But both
companies will have to continue innovate to avoid becoming victims of future disruptions. Both
companies—not to mention competitors, such as Target and Google35—know that the technologydriven wheel of cost leadership and low prices continues to turn, disrupting not just retail but also
adjacent markets. The key to continuing success will be roping in partners with complementary
offerings and harnessing the new ideas, methods, and technologies that facilitate still-higher sales
volumes for costs and prices that roll back every day.
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Everyday Low Prices: Technology Turns the Wheel of Fortune
Sources
See generally Wilson Koh, ‹ The Successful Cost-Leadership Strategy of Walmart › 2011/10/10 (blog post), available at
http://winaungko.blogspot.com/2011/10/successful-cost-leadership-strategies.html (explaining the essential connection between low prices and cost leadership).
1!
Cf. Mae Anderson, ‹ Changing Shopping Habits Affect Wal-Mart, Amazon ›, « USA Today » 2014/02/01, available at
http://www.usatoday.com/story/money/business/2014/02/01/walmart-amazon-changing-shopping-habits/5085679/
(“Traditional consumer companies like Wal-Mart and Mattel have continued to struggle as Americans spend more
cautiously in the uncertain economy. But Amazon.com has flourished as shoppers increasingly buy online rather than
head to stores.”).
2!
See Anderson, supra note 2 (“Amazon faces different problems than [sic] its bricks-and-mortar peers. Amazon’s results
were hurt because its costs are rising along with its meteoric revenue growth. […] [Amazon] struggles to balance its operating costs with revenue growth[.]”).
3!
4!
History Timeline, Walmart, available at http://corporate.walmart.com/our-story/history/history-timeline.
Edison Tse, ‹ Wal-Mart: The Largest Retail Store in the United States, if not the World › 1995 (case study), page 4
(citing generally Sam Walton & John Huey, « Sam Walton: Made in America » 1993 (biography)).
5!
6!
Id., pages 4–5.
7!
Id., page 5.
8!
Id., pages 5–6.
9!
Id., pages 8–10.
10
!
Our Locations, Walmart, available at http://corporate.walmart.com/our-story/locations.
Annual data for fiscal year 2012 ending on 2013/01/31, Wal-Mart Stores, Inc., available at https://www.google.com/
finance?q=NYSE:WMT&fstype=ii&ei=mRRxUOiwHIOwkAXYpgE.
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11
Cf. James Surowiecki, ‹ Priced to Go ›, « The New Yorker » 2009/11/09, available at http://www.newyorker.com/
talk/financial/2009/11/09/091109ta_talk_surowiecki (“Wal-Mart recently decided to start its own price war, taking
on Amazon in the online book market. Wal-Mart began by marking down the prices of ten best-sellers—including the
new Stephen King and the upcoming Sarah Palin—to ten bucks. When Amazon, predictably, matched that price, WalMart went to nine dollars, and, when Amazon matched again, Wal-Mart went to $8.99, at which point Amazon rested.
[…] [W]hy did they go to war? The answer is that they didn’t, really. Sure, Wal-Mart is making a statement that it’s a
player in the online world, but the real goal of this conflict isn’t to lure readers away from Amazon, and it isn’t to get
people to buy one of those ten books. It’s to lure them online, away from big booksellers and other retailers, and then
sell them other stuff.”); Brad Tuttle, ‹ Walmart’s New Loss Leader: Cheap Gas ›, « TIME » 2011/06/29, available at
http://business.time.com/2011/06/29/walmarts-new-loss-leader-cheap-gas/ (“It’s a classic retail technique: Attract
shoppers by lowering prices on certain items, with the idea that once customers are in the store, they’ll buy full-priced
items as well. The product being discounted in Walmart’s new “Rollback” promotion is an unusual one, though. It’s
gasoline.”).
!
12
Joshua Quittner, ‹ The background and influences that made Bezon the multibillion-dollar champion of e-tailing ›,
« TIME » 1999/12/27, archived at https://web.archive.org/web/20000407181649/http://www.time.com/time/poy/
bezos.html, page 6.
!
13
Josh Spiro, ‹ The Great Leaders Series: Jeff Bezos, Founder of amazon.com ›, « Inc. » 2009/10/23, available at http://
www.inc.com/30years/articles/jeff-bezos.html (“‘We’re going to be unprofitable for a long time. And that’s our strategy,’ Bezos told Inc. in 1997.”).
!
14
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Everyday Low Prices: Technology Turns the Wheel of Fortune
‹ Amazon.com, Inc. History ›, FundingUniverse, available at http://www.fundinguniverse.com/company-histories/
amazon-com-inc-history/ (citing « International Directory of Company Histories » 2004, volume 56).
15
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16
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Quittner, supra note 13.
See ‹ The Walmart of the web ›, « The Economist » 2011/10/01, available at http://www.economist.com/node/
21530980 (“Amazon’s pricing strategy also reflects one of the firm’s core beliefs, which is that cheap stuff makes customers cheerful. Call it the Walmart of the web.”).
17
!
FundingUniverse, supra note 15 (“For […] customers who were just looking for something to read in a general area of
interest, Amazon.com offered topic areas to browse, as well as lists of bestsellers, award winners, and titles that were
recently featured in the media. […] [F]or people who could not decide, Amazon.com offered a recommendation center. There a customer could find books based on his or her mood, reading habits, or preferences. The recommendation center also offered titles based on records of books the customer had purchased in the past[.]”).
18
!
FundingUniverse, supra note 15 (“As a pioneer in the world of Internet commerce, Amazon.com strived to set the
standard for web businesses. […] Bezos went to work on making the web site as customer friendly as possible[.] […]
The company also began offering 10 to 30 percent discounts on most titles, making the prices extremely affordable.”);
see also Spiro, supra note 14 (“The company succeeded in large part because it quickly embraced e-commerce innovations that improved its customer experience. Such standard operating procedures one-click shopping, e-mail verification of orders, and customer product reviews were not on the radar until Amazon adopted them.”).
19
!
See generally Emily Schmitt, ‹ The Profits and Perils of Supplying to Wal-Mart ›, « Businessweek » 2009/07/14, available at http://www.businessweek.com/smallbiz/content/jul2009/sb20090714_270767.htm (explaining, as the article’s
title suggests, the benefits to a supplier of a relationship with Walmart).
20
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21
!
FundingUniverse, supra note 15.
22
!
Id.
23
!
Tse, supra note 5.
24
!
FundingUniverse, supra note 15.
David Welch, ‹ Wal-Mart Gears Up Online as Customers Defect to Amazon ›, « Businessweek » 2012/03/20, available at http://www.businessweek.com/news/2012-03-20/wal-mart-gears-up-online-as-customers-defect-to-amazon.
!
25
See id. (“‘Amazon has moved from being this unusual niche competitor for Wal-Mart to a force that can reinvent the
industry,’ Gildenberg said[.]”).
!
26
See id. (“For years, Wal-Mart’s online operations have lagged behind those of its brick-and-mortar rivals. In the past
decade, Wal-Mart has tried hiring outside firms to develop its Web store and deployed a rotating cast of executives to
find a solution. Yet last year online sales amounted to less than 2 percent of revenue, according to Kantar.
Meanwhile, Amazon is on the march, successfully moving into merchandise that Wal-Mart traditionally has sold, from
diapers to vacuum cleaner bags.”).
!
27
See generally id. (discussing new ideas, methods, and technologies in which Walmart leads Amazon, such as “Pay With
Cash” for in-store pickup of online orders).
!
28
Cf. Steve Banker, ‹ Amazon vs. Walmart: E-Commerce vs. Omni-Channel Logistics ›, « Forbes » 2013/10/04, available at http://www.forbes.com/sites/stevebanker/2013/10/04/amazon-vs-walmart-e-commerce-vs-omni-channel-logistics/ (“Wal-Mart maintains that it isn’t trying to replicate Amazon’s business model, which it believes would be a mistake considering it has 4,100 stores within five miles of two-thirds of the U.S. population, Mr. Anderson (president of
Walmart.com) said. Instead, Wal-Mart plans to combine its stores, existing distribution centers, and new facilities into
what it calls its ‘next generation fulfillment network.”).
!
29
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Everyday Low Prices: Technology Turns the Wheel of Fortune
Cf. Christopher Matthews, ‹ Walmart Announces Same-Day Delivery, Tries to Beat Amazon at Its Own Game ›,
« TIME » 2012/10/11, available at http://business.time.com/2012/10/11/walmart-announces-same-day-delivery-triesto-beat-amazon-at-its-own-game/ (“The big-box giant announced this week that it too would be offering same-day delivery, using its extensive network of superstores as distribution centers, and shipping products to consumers via UPS.”).
30
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‹ Wal-Mart vs. Amazon ›, Minyanville 2011/06/20, available at http://www.minyanville.com/special-features/articles/infographic-walmart-infographic-amazon-infographic-amazon/6/20/2011/id/35159.
31
!
See Doug Gross, ‹ Amazon’s Drone Delivery: How Would It Work? ›, CNN 2013/12/02, available at http://www.cnn.com/2013/12/02/tech/innovation/amazon-drones-questions/ (exploring the idea of “drone” delivery).
32
!
Cf. ‹ Wal-Mart Takes on AmazonFresh ›, CNBC 2014/01/29, available at http://video.cnbc.com/gallery/?
video=3000240901 (discussing Walmart’s new initiative to compete with Amazon’s purchase and delivery service for
fresh foods).
33
!
Cf. Eric Noren, ‹ Analysis of the Amazon Business Model ›, Digital Business Model Guru 2013/07/08, available at
http://www.digitalbusinessmodelguru.com/2013/07/analysis-of-amazon-business-model.html (“The Amazon value
propositions of price and convenience hold true in all of its product categories, allowing it to extend itself into new
markets and deepen its customer relationships. The company has dominated online retail with a fairly standard traditional retail business model over the internet, using its buying power and financial resources to dominate the marketplace. This dominance will continue well into the future as Amazon continues to explore new product and service
categories. What we shouldn’t necessarily expect out of Amazon are unique business models.”).
34
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35
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Consider Google Shopping Express (see https://www.google.com/shopping/express/).
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