On September 20th, Wal-Mart announced that it would be dropping Amazon Kindle e-readers and tablets from its retail lineup. Once the merchant’s current stock of Kindle products is sold and the merchant’s current purchase commitments fulfilled, Wal-Mart will shift its focus in the tablet market to selling the Apple iPad, the Barnes & Noble Nook, the Google Nexus and various Sony and Samsung devices.
Wal-Mart’s move follows the exact same decision by Target in May, when Target’s brain trust decided to similarly stop selling the Amazon Kindle. The timing of the Wal-Mart decision is strange – retailers generate up to 40% of their annual revenue during the holiday season, and tablets are expected to be in high demand again this year – but the logic behind the decision is straightforward.
Amazon has become a very real threat to Wal-Mart’s brick-and-mortar retail business. Amazon is famous for its dominance of the online shopping world – rock bottom prices, great item selection, and the absence of charging sales tax in most states – but Amazon’s Kindle products represent how the company attempts to build a closed-circuit retail environment that excludes big retailers like Wal-Mart.
The concept is simple. Amazon sells its Kindle hardware at razor thin profit margins, at cost, or even at a loss (the reports vary) with the idea that Amazon will make its true profits from the sale of content or advertising. Amazon CEO Jeff Bezos, as he introduced the new Amazon tablets, famously said “We want to make money when people use our devices, not when they buy our devices.”
Simply put, the Amazon Kindle is designed to encourage users to buy more products from Amazon. Because of Amazon’s strategy to make online shopping even more convenient and more appealing with the Kindle, Wal-Mart and Target have little reason to sell the Kindle and play right into their adversary’s ambitions.
We reached out to some experts in the field to get their answers to some questions we had about this story. Here’s what they had to say:
Mario Almonte, PR specialist and blogger for the Huffington Post, on whether this news is indicative of the growing tensions between offline and online retailers:
“Amazon makes no secret of wanting to create a closed selling universe with the Kindle, and with online shopping growing every year, traditional brick and mortar stores are fighting for their lives to remain relevant to the new generation of shoppers who feel very comfortable doing everything from their computer. Physical stores are not in any hurry to bring about their own demise by promoting the very product that can do it.”
Bruce Clark, Group Coordinator and Associate Professor, Marketing, and Frank Murphy Family Fellow at Northeastern University D’Amore-McKim School of Business, on whether Wal-Mart’s decision will hurt the retailer’s bottom line:
“It would be different if Kindles were selling well. After an initial burst in the fourth quarter of last year, Kindle sales have been uneven at best, plummeting in the first quarter and then recovering somewhat over the summer. Further, competing products from Google and Samsung have given retailers like Wal-Mart other products to carry. Finally, the impending release of an iPad “mini” may make retailers feel a Kindle is less necessary to offer customers an attractive assortment. Wal-Mart and others are betting that sales of other tablets will make up for any lost sales of Kindles. I think it’s a good bet.”
Gurpreet Kaur, industry analyst for market research firm gap intelligence, on which company may be the biggest winner in this situation:
“In addition to helping itself, Walmart’s decision to drop the Kindle line, especially the eReaders will help Barnes & Noble significantly. With the clearance of Amazon’s Kindle eReaders, Walmart’s eReader assortment will be reduced to models from B&N (3 SKUs, $99-$149) and Kobo (1 SKU, $79). B&N’s established brand name as a bookseller, strong content eco-system, and its devices’ strong features will help B&N benefit at the chain.”