Amazon Faces Tougher Fight for Holiday Dollars

Amazon faces new obstacles.jpg
Amazon.com Inc's gift for dominating the holiday shopping season may lose some of its magic this year.

The country's biggest brick-and-mortar retailers, from Wal-Mart Stores Inc and Target Corp to Toys "R" Us TOYS.UL, are gunning for Amazon, competing more aggressively on price and offering speedier delivery through spruced-up websites and stores that double as distribution warehouses.

The onslaught comes as Amazon's price advantage over physical retailers is being whittled down. The company began collecting more sales taxes this year, in Texas, Pennsylvania and California, probably raising prices unless Amazon swallows the increase.

"These drivers are definitely placing added pressure on Amazon this year, more so than in the past," said Eric Best, chief executive of Mercent, which helps merchants sell online.

The final quarter of each year, encompassing Thanksgiving and Christmas, is vital for retailers because that's when they generate the most revenue and a big chunk of their profits. Amazon, through lower overhead, efficient inventory management, and better product selection and search, has dominated online purchases during the season.

Now Amazon itself appears to acknowledge the threat to its holiday crown, or at least the uncertainty engendered by resurgent competition.

During a recent conference call with analysts, it forecast fourth-quarter operating results ranging from a loss of $490 million to a profit of $310 million - far wider than last year, when it predicted a result that ranged from a loss of $200 million to a profit of $250 million. Amazon ended up making $260 million in the fourth quarter of 2011.

"There's increased competition from mass merchants and big-box retailers embedded in that guidance," said RJ Hottovy of Morningstar. "You could see margins somewhat challenged this season. I'm not expecting blow-out numbers from Amazon in the fourth quarter." An Amazon spokesman did not respond to a request for comment.

To be sure, these rival efforts may only dent Amazon's online holiday preeminence. The company has cost advantages over physical stores and it sells off inventory quicker. This is a crucial edge in the retail business, because unsold inventory is effectively stagnant money that could be used to generate more revenue and profit elsewhere.

Amazon's Prime shipping service is a magnet that will draw in holiday shoppers again this year. The company is spending heavily on new fulfillment centers nearer to big urban centers, speeding up delivery times to make the service more attractive.

But 2012 could turn out to be the year when retailers slow Amazon down.

"The competitive headwinds are certainly blowing," said Colin Sebastian, an analyst at R.W. Baird. "We expect Amazon's top-line growth rate to moderate a bit."

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SOURCE: Reuters
Alistair Barr
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