There Will Always Be Wal-Mart and Amazon

I am coming to the conclusion that aside from supermarkets and clothing stores, eventually we are just going to have Walmart (WMT) and Amazon.com (AMZN) as the 2 retailers in America. If you missed the news, Amazon snapped up Zappos.com. Shoes was the one area Amazon was trying very hard in and was not winning, so it did the Cisco (CSCO) strategy - if you can't compete, just buy. Congrats to the Zappos guys - I've seen a lot of interviews with the (very young!) CEO and they are huge on customer service and developed a loyal customer base.

A message from Bezos - welcome Zappos friends; you will be assimilated... world domination will soon be ours. (as much as I complain about overpriced CEOs, certain guys like Bezos deserve every penny for what they have created - great company, great leader)

Then we have Walmart, which ironically has one of the worst charts out there after a stellar 2008... (people are fleeing it as we anticipate the 2nd half 2009 recovery) - taking a direct blow at Best Buy (BBY). With the bankruptcy of Circuit City, Best Buy should be prospering, but as the pooring of America continues, Walmart is taking more and more share of the formerly middle class and even striking higher up the food chain. Remember, for now it appears we have deflation in things we want (clothing, electronics), and inflation in things we need (food, energy).

And if you want to see electronic deflation at work (to be fair electronics prices are ALWAYS falling over time), see what Walmart has planned in the back to school area. I think this is a very smart move, as consumer electronics is the one thing that will hold up reasonably well - just look at these teens and preteens; their electronic gadgetry is attached to their bodies. Social networking is not a choice (opt in, opt out) - it's the lifestyle. I didn't think Walmart would be a direct competitor to Best Buy in some parts of electronics, because of a lot more selection at BBY but many consumers - again - are being forced to go low end, whether they want to or not. $300 laptops? (no not netbooks, full fledged laptops) - that's going to drive foot traffic magnificently.

• Wal-Mart Stores Inc has expanded its laptop selection by 40 percent and will be aggressive in pricing the computers and the accessories to go with them as the discount retailer looks to win sales from frugal back-to-school shoppers.
• Starting this Sunday, Wal-Mart will begin selling an exclusive Compaq Presario notebook computer that it developed in partnership with Hewlett-Packard Co for $298. A similar unit currently sells at Wal-Mart for $548. "You're going to see us focus dramatically not only on price, but the value for that price."
• The Presario notebook will be selling at a price that would normally purchase a less-capable netbook laptop.
• Wal-Mart is looking at the back-to-school season as a chance to showcase its expanded selection of notebook and netbook computers, with Severson saying laptops are becoming a staple item for students of all ages.
• "There's no question that our customer is shifting from a desktop solution to a portable laptop solution," Severson said.
• He also said Wal-Mart views low-cost netbooks as a "growth" category. Netbooks, the bare-bones PCs, generally sell for $300 to $400, but prices are dropping as new offerings flood the market and wireless carriers offer subsidies with the purchase of a data plan.

How is that US consumer doing?

• Retailers have started the back-to-school shopping season on shaky ground as consumers show an unwillingness to spend on anything but basic goods. According to a National Retail Federation survey, the average family with children in kindergarten through 12th grade plans to spend 7.7 percent less on school gear this year than a year ago.

Now of course what they say and what they do are 2 different things but we ARE seeing FORCED changed behavior in Americans; at least those in the bottom 2/3rds.

• One bright spot in the survey was consumer electronics, where students plan to spend more. In addition, nearly 75 percent of respondents said they intend to shop at a discount stores for their new school purchases.

Let's look closer at the laptops ... devil in the details. Again, do not read this as an affluent computer snob who wouldn't be caught dead purchasing any PC your friend in IT did not put together himself. Think like the common middle class guy struggling in America.

• To gain leadership, Wal-Mart is following tactics it used to become a major player in flat screen TVs -- expanding its selection of name brands while trying to beat the competition on price.
• Wal-Mart has already started its back-to-school push in earnest and is offering Dell Inspiron laptops for $398 in colors ranging from pink to purple to aqua. The retailer also stocked accessories to match the colorful laptops, like $60 Western Digital hard drives and $25 Logitech cordless optical mice in black, blue, pink and red.

Kids like the colors, they like the accessories, they like to personalize.

• Wal-Mart said the Dell offering was a popular one, and it expects a similar response for the Compaq Presario that goes on sale July 26. It will have 3 gigabytes of memory, a 160 gigabyte hard drive, and it will come pre-loaded with Microsoft Corp's Windows Vista operating system.

That's pretty sweet, except for the Vista part (ahem).

• On Sunday, Wal-Mart will also cut the price of an Acer laptop with an 8-hour battery by $50 to $548. The computer has 3 gigabytes of memory, a 320 gigabyte hard drive and qualifies for a free upgrade to the Windows 7 operating system when it is released.
• Wal-Mart will unveil more offerings during the summer, like a mini netbook by Hewlett-Packard and a Dell laptop with 4 gigabytes of memory and a 500 gigabyte hard drive.

Another smart thing - combinations... get the wireless service all in 1 with the hardware. Much like a phone.

• Severson said Wal-Mart is looking at ways to offer shoppers deals on netbooks that come bundled with a wireless plan. "We're having conversations with carriers and with the hardware manufacturers around that, and are really trying to find where that great value sweet spot is," he said.

Again, this goes with our piece earlier today - look at the world the Japanese and South Koreans are living in circa 2004. It's finally arriving to our shores. What is funny is (smart) phones and these netbooks are converging in price, and soon the only difference will be size and to a smaller degree functionality. But now if you can place laptops in the same price zone as the netbooks; that's a whole different paradigm.

Disclosure: No positions

Comments

[John Galt]

Compaq Presario that goes on sale July 26. It will have 3 gigabytes of memory, a 160 gigabyte hard drive, and it will come pre-loaded with Microsoft Corp's Windows Vista operating system.
That's pretty sweet, except for the Vista part (ahem).

- Hahahahhahah You always make me laugh.

The whole idea that everything will evenutally be Walmart or Amazon is a powerful one though, they are both very good at what they do. Maybe the other stores in the future will have to somehow try and differentiate themselves because as of right now they can't compete at the same game.

I also think you underrate a little bit WHO shops at Walmart. It isn't just the poor/middle class people, lots of wealthier, millionare next door types shop there too. Why would I buy something for 40 bucks when I can buy it at Walmart for 25? It's just a mentality.

It's also nice to know that you think SOME CEO's that drive business should actually make more money per year than New York Yankees Pitchers, LA Lakers backup shooting guards and Dallas Cowboys wide receivers.

Are some of the "autopilot" CEO's overpaid? You betcha, but there are also true drivers of wealth out there that deserve every penny.

2009 Jul 24 08:43 AM

[Leftfield]

Steve Jobs is another deserving CEO. But most of them, along with the whole leadership class are Marie Antoinettes. Someone in politics has to sell a government that serves and doesn't take another chunk out of the little guy again. The paradigm has been: Here is your dysfunctional lousy program with no possible future of getting funded but for smoke and mirrors and here is your huge new tax and regulatory burden.
Real leaders could weed the jungle of failed and cross-purposed programs, offer real solutions and......Savings. We'll need them to pay off the mess we've created so far.

2009 Jul 24 09:40 AM

[Jasper M]

Personally, I am already seeing cracks in the allegedly perfect business plan of Walmart. The are already not always the cheapest (at least, in my neck of the woods) in several sectors, and their selection within inventory keeps getting worse.

Here's another analogy: Just before the end of the Cretaceous, diversity of large animal species declined markedly. Most of the biomass was concentrated in a few (mostly famous, mostly large) species.
IT Didn't Help.

So, No, Virginia, there may not always be a WalMart. Someday (hopefully), our descendants may gaze in detached awe at the the skeletal remains what, at the time, Seemed like a successful model.

2009 Jul 24 04:15 PM

[Ted Hurlbut]

No business model endures forever. Granted, forever is a long time. But, as dynamic as both companies are, they will eventually become captives of their own success, and will find that they are not as nimble as more youthful, innovative companies. Times change, technology changes, culture changes, retailing changes. Certainly, however, as retailing as it currently exists today consolidates into fewer and fewer major players, both of these companies look to become evermore dominant players. And therein lies the risk...

2009 Jul 24 04:27 PM

[ValueInvestor13]

Sure, sure, that's what they said about Sears Roebuck 40 years ago. "Always" is a very dangerous word in investing.

2009 Jul 24 10:45 PM

[mkreisel]

I'm also baffled by that lousy WMT chart.

Could it be that market worries about Wal-Mart losing its edge in a recovering economy, or could it be that market sees some dark clouds on the horizon for Wal-Mart I fail to recognize?

2009 Jul 25 11:48 PM

[einstein p fleet]

Walmart averages 130M shoppers a week in the store, which is mind-boggling. Most likely, the addition of supermarkets to the stores has been a big factor in the upsurge in visitors during the last twelve months. Lately, they are making a move into sustainable, natural foods which would also mean a move into domestic manufacturing. This is very shrewd. I'd forget about the chart and think about buying the stock at these levels. Walmart is about to become the 8000 pound gorilla in the room.

2009 Jul 28 12:58 PM

[TraderMark]

Grocery has become a huge boon in this recession.


On Jul 28 12:58 PM einstein p fleet wrote:

> Walmart averages 130M shoppers a week in the store, which is mind-boggling.
> Most likely, the addition of supermarkets to the stores has been
> a big factor in the upsurge in visitors during the last twelve months.
> Lately, they are making a move into sustainable, natural foods which
> would also mean a move into domestic manufacturing. This is very
> shrewd. I'd forget about the chart and think about buying the stock
> at these levels. Walmart is about to become the 8000 pound gorilla
> in the room.

2009 Jul 28 02:12 PM

[Graham and Dodd Investor]

WalMart. MAYBE, but Amazon?

2009 Jul 28 03:30 PM