NEW YORK - Wal-Mart Stores Inc's expansion into e-commerce will likely be successful as the company's aggressive price cuts and broad distribution capability may give Amazon.com Inc a run for its money, Moody's Investors Service said on Monday.
An online book-selling price war between Wal-Mart, the world's largest retailer, and Amazon.com, prompted last week by Wal-Mart cutting prices on 10 book titles, is an indication that Wal-Mart is serious about taking its ferocious price-cutting into new markets, Moody's said in a report.
In the past year, the Arkansas-based discounter has been focused on markdowns for necessities, such as food, that drove sales in the downturn.
Its aggressive strategy is now spreading rapidly to other goods being sold online as well as in the company's stores.
While there are generally no real 'winner' in price wars, 'buzz' is created, which is typically the real intent, said Charles O'Shea, lead author of Moody's report.
Wal-Mart will likely succeed in luring new visitors to its website, which would be a win, he said.
We feel the downside risk of expansion of Internet sales to de minimus, said O'Shea.
But books are a small portion of Wal-Mart's revenue base, as is e-commerce in general, and Wal-Mart may find it difficult to retain its new higher income consumer base against Amazon's well-ingrained market share, said O'Shea.
This is less of a risk on the Internet side as consumers are typically driven more by quality and navigation ease of the website ... than how plush brick and mortar locations are, he said.
Amazon has proven to be a formidable online retailer with a globally recognized brand that has become synonymous with Internet shopping and could be the toughest competitor Wal-Mart has recently faced, O'Shea said.
Wal-Mart's current distribution network is easily scalable to handle what will likely be increased volume, which likely differs from Amazon's other competitors, O'Shea said. (Reporting by Tom Ryan; additional reporting by Nicole Maestri in San Francisco; Editing by Padraic Cassidy)