Deja vu: Wal-Mart, Amazon, Target in DVD price war

It's the latest salvo in an ongoing online push by Wal-Mart designed to make sure everyone knows it intends to be the low-price leader on the Web, as well as in stores.

The retailer, based in Bentonville, Ark., said late Thursday that it would lower the online prices of new DVDs such as "Harry Potter and the Half Blood Prince" and "Star Trek XI" to $10.

But when Amazon reduced some of its DVD prices to $9.99, Wal-Mart shot back by cutting its DVDs to $9.98 as of Friday morning. Target got into the act Friday morning, too. All three companies also sweetened the pot by offering free shipping for the DVDs being sold.

The goal of such tactics is to drive higher volume, said BMO Capital Markets analyst WayneHood. He noted that some businesses like Wal-Mart and Target can afford to lower their prices and still be profitable because of their low-cost distribution models.

But not all retailers appear to be engaging in the tug of war, as Best Buy Co., Barnes&Noble Inc. and Borders Group Inc. all had higher prices for some of the DVDs Friday.

That might cost them some sales, but also might not be a bad idea.

Hood said it is important for some of Wal-Mart's rivals to remain competitive on price, but that trying to undercut Wal-Mart, with its huge scope and buying power, is a losing game. The retail giant sells enough products in enough categories to make up for any losses on individual items that it uses to pull people into stores or onto its Web site.

"On an everyday basis, customers expect Wal-Mart to be the benchmark or standard for pricing," he said.

Wal-Mart, which generated more than $400 billion in sales last year, has been aggressively trying to stake its claim online. The DVD discounts and last month's book discounts are part of a series of maneuvers the retailer has taken to draw shoppers to its Internet home.

Wal-Mart's book price war with Target and Amazon.com in October saw the companies lower the online preorder prices on titles such as "Under the Dome" by Stephen King and "Ford County" by John Grisham. Prices dropped as low as $8.98.

As books in the price war have come to market, prices have gone up, though the sellers are still discounting them heavily.

Wal-Mart's DVD price cut follows its announcement late last month that it would reduce prices weekly on top-selling items from bananas to board games and hold those cuts through the holiday season. It is also offering more than 100 toys at $10 during the holidays.

Aside from the discounts, Wal-Mart has tried to drive people to its Web site with a massive boost to its online product offerings. In late August the company said it would allow outside retailers to sell nearly 1 million items — from baby products to sports memorabilia — on Walmart.com. And in October Wal-Mart said it would start selling health and beauty products online.

Wal-Mart's stock fell 29 cents to $50.99 in afternoon trading, while shares of Target shed 7 cents to $49.63. Amazon.com's stock gained $5.18, or 4.3 percent, to $125.79. The shares hit a 52-week high of $126.98 earlier in the session.

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November 06, 2009 12:46 PM EST