WalMart comes to its senses and stops selling Kindles

Reuters reports that WalMart will stop selling Kindles – both Kindle Fire and Kindle will no longer be sold at WalMart.

It’s the second big retailer after Target to do so. It’s interesting that all these companies are coming to their senses. Here’s what WalMart had to say -

“We have recently made the business decision to not carry Amazon tablets and eReaders beyond our existing inventory and purchase commitments,” Wal-Mart said in a memo sent to store managers on Wednesday. “This includes all Amazon Kindle models current and recently announced.”

An analyst thinks the main reason is that Amazon is considered a competitor -

“I think part of it could be margin, though the bigger point is that Wal-Mart and Target view Amazon as a competitor,” Tilghman said.

Yeah, suddenly they wake up and realize Amazon is going to destroy them if they don’t wisen up fast.

Retailers selling mini Amazon.com Stores is Madness

When WalMart started selling Kindles it seemed, to me, the most insane decision ever. Here’s part of what I wrote (the link has the entire post) -

It’s absolutely inexplicable to me that stores like Best Buy and Target and WalMart would sell Kindles and accelerate their own demise.

Do they not realize that Kindle Fire is a direct connection to Amazon.com? That Kindle and Special Offers will end up eroding the sales of the retail stores?

She (Best Buy spokeslady) might as well say -

We are getting tired of selling all these electronics. So we thought we should let Amazon get a direct connection to our customers so that our customers start buying electronics from Amazon.com instead.

This is a standard standard pattern. Fool the existing market leaders into giving you a piggyback ride. Then turn on them when you have enough reach/control/power.

Technology Companies ALWAYS destroy the Incumbents – Right after promising them Salvation

It’s an endless list of new technology companies that destroy existing markets -

  1. Newspapers put their faith in Google. How’s that working out? What they really should have done is banned Google from carrying any of their content.
  2. Borders let Amazon run its online store. Smart move Borders.
  3. Book Publishers are trusting Google and Amazon and B&N. They are going to get skinned alive. Now that the Agency Model has been ruled illegal it’s going to happen even quicker.
  4. The Music Industry let Apple take control of the music industry. It might be great for users but it’s not great for Music Publishers because they are selling $1 songs instead of $11 Albums. Additionally, all the control is with Apple and (to an extent) Amazon.
  5. The list goes on and on. New, upstart technology companies always make an idiot of existing industry giants. The sad thing (from a strategy perspective) is just how often the established gatekeepers think that the new upstarts have the best interest of the existing gatekeepers in mind. Oh this nice young man wants to help us. Young Man, here’s a list of our best customers and thank you so much for all the help.

For all these points PLEASE keep in mind that I’m not saying ‘This is not good for customers’. Of course it is. If you can get free music and free movies and free software – it’s obviously great for customers. And it’s great for the technology company supplying you all this for free – it can run ads and make money, or charge you a subscription.

It’s bad only for the creators and the gatekeepers. Because they gradually lose profitability and control.

It’s madness for the existing powerful companies in a space to accelerate their own demise by trusting new technology companies. The more ‘savior’ and ‘good’ a company seems, the higher the chance it’ll eat you alive (you = existing gatekeeper).

WalMart and Target should NEVER have sold Kindles

If you expect the companies to have half a brain they should have understood that Kindles which allow buying any book, any time, instantly would erode their own book sales. So carrying the eInk Kindle was a stupid decision.

However, it takes a special level of pigheadedness and stupidity to not see what the Kindle Fire was and is.

Perhaps now that Amazon went overboard with Sponsored Offers and Recommendations, it finally struck the fine people at WalMart that they are selling mini Amazon.com stores. Better late than never.

People underestimate the Power of the Path of Least Resistance

WalMart and Target, and people who defend their ridiculously bad decision of selling mini Amazon.com stores, probably make a lot of assumptions -

  1. People would never shop for groceries online.
  2. People would not be willing to wait an entire 2 days.
  3. People would want to see things in person.
  4. People would not go to a store and then buy online.
  5. People want the convenience of a large store they can do their entire shopping at in one trip.
  6. People want to see real people.
  7. People want same day gratification.
  8. People love the weekly drive to the stores.
  9. People want the social aspect of shopping.
  10. People want to support their local retailers.

Let’s take WalMart’s case and consider why each of these assumptions is shortsighted -

  • People would never shop for groceries online. Well, Amazon is setting up Amazon Fresh and gradually expanding it. We’re soon going to find out how people react to grocery shopping online if there’s same-day delivery.
  • People would not be willing to wait an entire 2 days. They won’t have to. Amazon is setting up enough distribution centers to achieve same day and next day shipping in lots of areas.
  • People would want to see things in person. The Zappos approach – free returns. Amazon already has 30 day returns. They could expand and say – buy 3 items and keep the one you want.
  • People would not go to a store and then buy online. They do it all the time already.
  • People want the convenience of a large store they can do their entire shopping at in one trip. What store can be bigger than an online store selling ten million items?
  • People want to see real people. Not really. It helps but it costs a LOT to have good qualified sales people. Brick and Mortar stores are losing that and it means that the value of real people customer service is declining.
  • People want same day gratification. Amazon is setting things up to deliver this.
  • People love the weekly drive to the stores. That’s just nonsense.
  • People want the social aspect of shopping. Again, this is a bit of a fantasy.
  • People want to support their local retailers. WalMart, how did that work out for all the small grocery stores you drove out of business?

Yes, there are very REAL advantages to shopping in a store. However, there are also disadvantages. And Amazon keeps reducing the advantages real stores have (instant gratification, quick gratification, selection), and it keeps increasing the advantages it has (cheaper prices, wider selection, no checkout lines, etc.).

The Path of Least Resistance is already online stores for a sizeable percentage of the population (perhaps 15% to 20%). As Amazon keeps refining things it’ll reach the point where 40% of the population prefers online shopping. At that point the retail stores will be in trouble because they will start losing out on volumes and impulse purchases and their prices will become less competitive.

Every Kindle Fire is an Amazon.com Mini Store in Customers’ Hands

This is the part that totally baffles me. Was this not clear to Target and WalMart from the start?

They have the following options -

  1. Sell iPads where they make a cut and Apple doesn’t sell anything other than digital content. Not ideal but not bad.
  2. Sell Google Tablets where they make a small cut and Google is only interested in online search and in getting a cut of online transactions. This is worse than Apple because there’s less money and Google has more of a ‘I want a cut’ mentality. However, this is still not that bad.
  3. Sell Kindle Fires where they make a small cut and ALSO make it easier for their users to BUY EVERYTHING easily from Amazon. This is absolutely crazy. It’s the equivalent of WalMart setting up Amazon.com Stores in people’s houses.

There’s no Room for Confusion – Selling Kindle Fires was a self-defeating move by WalMart and Target

People fall into two categories -

  1. People who realize that selling Kindle Fires is the stupidest thing WalMart and Target could do. That WalMart and Target are hammering in the nails into their own coffins by selling Amazon.com mini stores to their loyal customers.
  2. People who assume that ‘Having that Amazon mini Store in people’s hands 2 to 3 hrs a day doesn’t matter’ OR that ‘People will pick a tougher path over The Path of Least Resistance’.

The latter category will use strange arguments like – People could still go online to Amazon.com from any Tablet. Yes, of course. But that’s very different from having a device which literally bombards users with ‘Stuff they can buy from Amazon’ constantly.

Big difference between -

  1. Once a week I go to Amazon.com on my iPad I bought at WalMart.
  2. Every 15 minutes I see one thing I could buy from Amazon on my Kindle Fire HD I bought at WalMart.

Add on the fact that MOST media purchases on iPad go to Apple whereas most media purchases on Kindle Fire will go to Amazon.

It’s not even close. WalMart and Target were literally signing over hundreds of dollars in digital media profits per customer to Amazon with every Kindle Fire purchase. They were also losing a few hundred dollars in physical item profits per customer themselves (which also would go to Amazon).

It’s such bad strategy that it’s painful. It physically pains me to see WalMart and Target selling Kindle Fires. It’s one thing to get beaten by technology because it’s better technology. It’s completely different to be stupid/ignorant/clueless enough to hasten your own demise and to hand over your BEST customers as fast as you possibly can.

We aren’t yet at the Inflection Point

Well, WalMart has come to its senses. Target came to its senses about 5 months ago. At some point other retailers will realize what’s really going on. We haven’t yet reached an Inflection Point – a point at which retailers are GUARANTEED destroyed and Amazon is completely unstoppable. If more retailers start realizing what is REALLY going to happen with all the Kindle Fires they are helping sell, then hopefully retailers can avoid the Inflection Point.

A state of equilibrium, where Physical Retailers and Amazon keep competing without killing each other, would be nice. A LOT of people assume this is what’s going to happen. Actually, it’s very unlikely. If you think about the advances that are happening, and think about the 10 to 20 year scenario (instead of 2 to 4 years out), then it becomes evident that physical retailers need to BOTH lock online reatilers out of their stores AND create their own online presence. If that doesn’t happen, Amazon will dominate ALL of retail in the US within 20 to 25 years. Then all the retail battles will be fought only between online retail giants like Amazon and Rakuten.

8 Responses

  1. Great analysis, as usual. Best Buy, Staples, and the other retail chains need to follow suit, if they hope to remain competitive in the future.

  2. I would go out of my way to shop at amazon and skip the wal-mart!
    If i need to see people and be social, I will invite some friends over and have a BBQ!

  3. Can’t say I agree with the premise.

    Wal-Mart and Target are in the business of selling stuff, and Kindle is pretty hot stuff.

    Or do you think that people won’t buy a Kindle if they’re not sold at Wal-Mart or Target?

    And, after having already bought the said Kindle they won’t alter their purchasing (especially of books) in exactly the same way as if they had bought it at Wal-Mart?

    The *only* rational reason to not sell Kindles if you can demonstrably make more more money selling something else within the same shelf/storage/advertising footprint. And that there isn’t anything else which is of even lower profit margin…

    • What about people who don’t know Kindles exist?

      If such people come into Wal Mart or Target – they are guaranted to not buy a Kindle there. Or to find out that it exists. Or best of all, to buy a competing Tablet.

  4. Once all the states start making all online retailers such as Amazon collect state sales tax, there won’t be as much as an advantage to online shopping. California just started making Amazon collect sales tax, so if I can buy the same product locally for the same price (or less)as Amazon at a retailer such as Walmart or Target, and be able to take it home immediately, I would shop locally. I would never buy groceries, especially produce, online. You can’t tell how ripe an avocado or melon is online, or look at how fatty a piece of meat is online. If I get produce at the local store & it’s not satisfactory, I can return it and get an immediate refund or replacement. Somehow, I can’t picture the Post Office accepting a package of unripe fruit or sour milk to send back to Amazon.

    Brick and mortar stores offer loss leaders to get customers into their stores. Amazon and other online retailers don’t – you’ll say they don’t have to. I have seen prices at Walmart and other stores that are better than Amazon.

    Some people have to try on shoes & clothing before buying them. The last time I bought a pair of sneakers, I had to try on at least half-a-dozen pairs before I found one that fit properly and was comfortable – even within the same brand. I also found a pair of shoes at a local Bealls outlet store that was less than half the price of the same shoes I bought at Zappos.com a few months ago.

    Amazon and other online retailers are not the end-all and be-all of retail shopping. Online retailers don’t employ my family, friends and neighbors, nor do they pay local property taxes that balance the budget in my town (and reduce local property taxes for residents) and pay for local services such as the fire & police departments, road maintenance, and education for my kids.

    Walmart and other large retailers may have shut down mom-and-pop retail stores, but they have created more jobs than than the stores that were lost. Mom-and-pop retail stores aren’t open 24/7, many of them were only open Monday – Saturday, 9-5, when most working people are at work.

    I’ll continue to shop locally when it makes sense, and online when I get a better deal.

  5. I think that Target and Walmart not carrying Kindles also has to do with the burn they are feeling due to being stuck with thousands of last gen kindle devices they will have to take a big loss on. By dropping the new kindle fire price below the price they were selling B&M and upgrading to boot Target and Walmart are now holding stock they will have to cut below cost to move. It’s not good business sense to subsidize your competitor by buying, or commiting to buy, their outdated hardware at current prices while they stick to selling the next generation.

  6. Is Amazon Prime the equivalent of supermarkets loyalty/rewards cards? As you pointed out, Amazon Fresh is being rolled out (hope they learned from Webvan.com’s failure in the dotcom bust), will it offer a rewards card type program or incorporate that into Prime? One of the supermarkets advantages is the rewards card which is a tremendous marketing source for grocers as they can research and find out what each individual shopper’s preferences and tailor specific ads or special sales to that person.

    I have a suspicion that Amazon will eventually offer a rewards program for its grocery shoppers or add this feature to Prime in the near future.

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