Wal-Mart (NYSE:WMT) is not satisfied challenging rivals like Amazon (NASDAQ:AMZN) and Target (NYSE:TGT) in the e-book and toy businesses. Its program to take the lion’s share of the modest number of consumers likely to come out during the end-of-recession shopping season has been extended to DVDs.
Walmart.com has started to offer DVDs which are likely to be hot sellers for only $9.99. Most have retail prices of $25 to $30, so the world’s largest retailer is not likely to be making money on them. It is part of Wal-Mart’s strategy to get people in the “door” and then sell them other items.
Amazon and Target dropped prices on DVDs which are likely to sell well to $10 within a few hours after the Wal-Mart move.
Wal-Mart and its rivals are taking a substantial set of risks. There is no guarantee that loss leaders lead to anything more than losses. Frugal consumers may simply buy inexpensive e-books, toys, and DVD and leave websites and stores without making purchases of items which carry high profit margins. Picking up market share while sacrificing profits is a program that may simply not work, especially during an economic period when the consumer has gone into a shell because of unemployment and low credit availability.
Wal-Mart is being challenged by book publishers for trying to create a monopoly in book sales. Low prices mean that it is harder for book companies to sell titles brought out at future dates at the normal $20 to $30 per copy that they have traditional received. Wal-Mart may be permanently pushing down the price of hard cover books. The movie industry may raise the same antitrust concerns about DVDs. The difference between books and movies is that the largest studios have more financial clout than book publishing houses do.
It will be a Merry Christmas for people who want to buy DVDs from the most popular movies. Maybe those people will buy a new Blu-ray player of flat screen TV to go with their DVDs. And, maybe they won’t.
Douglas A. McIntyre
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