Price war to remain elevated
Along with fast delivery and convenient shopping, another key advantage that Amazon (AMZN) holds over retailers is its low pricing. Amazon’s pricing advantage and scale have put many small retailers out of business. Large retailers are forced to invest in the price to drive traffic and stay relevant with consumers.
Walmart (WMT), Target (TGT), and Costco (COST) continue to invest in price, which is driving traffic and pressuring margins. According to Profitero, an e-commerce analytics company, the price war among retailers and Amazon has intensified in the grocery business. Retailers remain committed to offering value and reducing Amazon’s price edge.
Amazon’s pricing advantage has often raised eyebrows. President Trump blamed Amazon for putting retailers out of business due to its business practices. Walmart’s ex-CEO, Bill Simon, termed Amazon’s pricing as “anti-competitive” and “predatory.” Speaking to CNBC, Simon stated that Amazon is destroying the value in retail.
Target and Walmart see progress
According to Profitero, both Walmart and Target are quickly closing the price gap with Amazon for online groceries. Walmart’s online grocery prices are now only 1.8% higher than Amazon’s prices. Meanwhile, Target isn’t far behind with its prices nearly 6.0% higher than Amazon’s prices. Notably, Walmart and Target are quickly matching the prices of online grocery and CPG (consumer packed goods) products.
Last year, Target reduced the prices on thousands of products spanning from cereals to razors to remain competitive. Undoubtedly, value offerings are driving retailers’ traffic. However, their margins remain at risk.
Recently, Target, Walmart, and Costco reported sluggish margins. Consumer product manufacturers including Procter & Gamble (PG) and Kimberly-Clark (KMB) are also feeling the heat from elevated price competition among retailers.