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What's Really Behind the Wal-Mart-Amazon Price War?

Friday, 16 Oct 2009 | 1:09 PM ET

Has Wal-Mart Storesfound the magic bullet it needs to drive more business to its Web site?

Sarah Palin's "Going Rogue" and John Grisham's "Ford Country"
Sarah Palin's "Going Rogue" and John Grisham's "Ford Country"

The world's largest retailer has taken aim at the sweet spot of Amazon.com's business: the must-have books of the holiday season.

First, Wal-Mart cut prices on several notable upcoming hardcover releases to $10, which is about 60 percent lower than the regular cost. As an added bonus, they threw in free shipping. When Amazon.com matched the price cut, Wal-Mart scrambled and by Friday morning it lowered its price to $9.

Although Wal-Mart has rolled out a number of new initiatives aimed at driving more shoppers to its Web site, including this week's announcement that it would begin selling some health and beauty products online, traffic to Wal-Mart.com has not grown as much as the retailer would like.

According to data tracker Comscore, Wal-Mart.com gets less than half the number of unique visitors as Amazon.com to its Web site each month.

This clearly smarts. In a comment to The Wall Street Journal, Walmart.com CEO Raul Vazquez was quoted as saying, "If there is going to be a 'Wal-Mart of the Web', it is going to be Walmart.com. Our goal is to be the biggest and most visited retail Web site."

They still have a way to go.

Richard Hastings, a consumer strategist at Global Hunter Securities, said he sees Wal-Mart using these potential best-sellers as a way of driving more traffic to the site. And since each shopper will be getting such a great deal, the theory goes they may be inspired to make other purchases as well.

Hastings notes this strategy has served Wal-Mart well in the past. Remember Wal-Mart's deep price cuts on generic drugs? The steep discounts wooed bargain hunters in droves into Walmart stores for their prescriptions.

Of course, the worst result may be for those who get caught in the crossfire of this tussle. Many competitors won't have the scale to match these steep price discounts, especially independent bookstores.

"This price war could putBordersover the edge," said Burt Flickinger, managing director of Strategic Resource Group, a retail consulting firm. He explained that the company is undercapitalized.

He suspects that Barnes and Noble will be better positioned to weather this storm as the company provides its shoppers with a different experience with its in-store cafes and strong loyalty card business.

"They will feel the heat, but not as much as Borders and the independent bookstores," Flickinger said.

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Questions? Comments? Email us at consumernation@cnbc.com

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