Jennifer Booton / MarketWatch – Amazon.com Inc. is gradually lowering prices across several major consumer goods categories in an effort to bolster its retail business and better compete with offline retailers, a recent analysis of price trends conducted by Bernstein Research has revealed.
As more people buy consumer health, personal care, pet care and baby products from diapers to shampoo online, Amazon AMZN, +0.58% is “cutting prices to achieve scale,” Bernstein analysts said.
This could challenge industry margins for offline retailers such as Wal-Mart Stores WMT, +0.26% , Walgreen Co. WAG, +2.27% and Target Corp. TGT, +0.57% , and require them to adapt to a more “dynamic and deflationary online pricing environment,” they said.
The brokerage analyzed pricing trends across 150 stock keeping units (SKU) within Amazon.com’s 10 broad consumer categories. It found that prices have fallen across 50% of the company’s SKUs over the last year, while they have been flat across 24% and increased across 26%.
The numbers were even more drastic when comparing price movements with all available data, which in some cases dated back as many as eight years. Using that yardstick, prices have fallen among 71% of the sampled SKUs, according to the report.
Spokespeople for Walgreen, Target and Amazon were not immediately available for comment. A spokesman for Wal-Mart said the Bernstein report misses the fact that Wal-Mart is one of the largest e-commerce companies in the world, with $10 billion in global sales last year.
While consumer packaged goods (CPG) hold a massive share of the overall retail market, they have low penetration among e-commerce channels, as many consumers still prefer to buy everyday household goods at brick-and-mortar stores on an as-needed basis.
However, the Bernstein analysis suggests that the trend is starting to tilt in favor of the online shopper. New subscription services such as Amazon Prime that trade an annual fee for free shipping and other perks have more consumers opting for e-commerce convenience. E-commerce companies are taking notice, and now Amazon is lowering prices in key categories to better compete.
Amazon Prime ‘has made me lazy’
MarketWatch asked people on Twitter whether they were more willing to buy everyday items like shampoo and pet food online today than they were two years ago. The responses were heavily tilted toward e-commerce – although to be fair, most of the respondents were tech-savvy millennials.
“I get pretty upset when a product is out of stock online and I have to go to a real store, especially now that it’s cold out,” one user said. Another added: “Yup … especially if I know I’m not going to step into a store within the next two days.” A third simply joked: “Amazon Prime has made me lazy.”
E-commerce professionals polled by MarketWatch were more mixed in their views. Consumer World founder Edgar Dworsky said he was “not aware of that trend,” and said ordering a bottle of Tide online could prove an “expensive proposition” if the consumer were responsible for shipping costs.
Jeff Green of brick-and-mortar retail consulting company Jeff Green Partners said the trend for now seems to be exclusive to affluent urban areas with a young, tech-savvy population — places like New York and San Francisco.
He said it will be a while until a majority of consumers are buying everyday items like shampoo and toilet paper in bulk from Amazon or Chinese rival Alibaba Group BABA, -3.01% . However, he did concede that the market is “a long way” from where it was just a year ago.
Rory McDonald, a professor of disruptive innovation at the Harvard Business School, was the most bullish on the trend, saying Amazon will continue to have an edge if it nails down prices, continues to win on convenience and gets shoppers comfortable with the idea of auto-replenishment.
As Amazon’s algorithms learn about user shopping patterns and consumption behavior, the company would feasibly be able to recommend refills on a timely basis. If it can make predictions accurately enough, more people might be willing to subscribe to automated shopping in the future, he said.