AMAZON, WAL-MART SAID IN TALKS
Byline: Kristin Young / Valerie Seckler
LOS ANGELES — Shares of Amazon.com Inc. surged 26 percent in heavy trading Monday as the Web’s biggest e-tailer stepped into the spotlight on Wall Street, fueled by a report that it is in talks with its terrestrial counterpart, Wal-Mart Stores Inc., regarding some sort of strategic alliance.
Spokespersons from both Bentonville, Ark.-based Wal-Mart and Seattle-based Amazon cited corporate policies that keep them from commenting on rumors or speculation — when asked about a report that surfaced in Britain’s Sunday Times that had Amazon founder Jeff Bezos in talks with Wal-Mart chief executive officer Lee Scott, regarding a deal that would make Amazon the main supplier of the struggling Web site of the world’s largest retailer, at Walmart.com.
In a nutshell, such an alliance would bring Wal-Mart the expertise of Amazon’s $2.76 billion e-commerce operation — and, sources speculated, perhaps a tab on the Amazon home page akin to the one taken by Toys ‘R’ Us — while Amazon would benefit from exposure to customers of the world’s largest retailer, in a potential revenue-sharing arrangement. Internet-enabled kiosks in some of Wal-Mart’s 4,500 stores, for instance, could bring Wal-Mart shoppers easy access to the Amazon Web site, they noted.
Fed by the rumor, Amazon’s stock ran up $2.63, to close at $12.63 a share in Nasdaq trading Monday, as approximately 24 million shares changed hands, or more than double the issue’s average daily volume of 9 million shares. Shares of Wal-Mart, in contrast, were flaccid, easing 55 cents to end the day’s session at $48.37 a share on the New York Stock Exchange.
Given the struggles of Walmart.com to mount a successful e-commerce effort, since the e-tailer’s launch back in 1996 and most recent relaunch, last October, a deal between the Bentonville behemoth and Amazon makes sense to some Web watchers, such as Ken Cassar, senior analyst at New York-based Internet consultant Jupiter Research. “Walmart.com has really been struggling on how to make the Web work,” Cassar said of the Brisbane, Calif.-based dot-com that laid off 24 people, or 10 percent of its workforce, last week as noted.
“They’ve seen an impressive increase in traffic to their site over the past six months,” Cassar continued, “but I wonder whether Walmart.com could be able to handle large volumes of transactions. I wonder whether Walmart.com is wondering the same thing — thus a [potential] partnership with Amazon.”
Amazon has already proven its ability to handle heavy sales volumes, and Cassar pointed out that a deal with Wal-Mart could also strengthen Amazon’s core retail business, which has been sluggish lately and has continued to log losses. Sales at Wal-Mart Stores expanded 16 percent, to roughly $193 billion for the fiscal year ended Jan. 1, resulting in net income of $6.3 billion, up 13 percent, before an accounting change, while sales at Amazon.com advanced 68 percent, totalling $2.8 billion, for the fiscal year ended Jan. 31, but its net loss nearly doubled, coming to about $1.4 billion.
Still other Internet observers contended the Amazon/Wal-Mart rumor is no big deal.
“It strikes me as another made-up story by the British press,” said Bill Dreher, a research analyst who tracks Internet stocks at Robertson Stephens in San Francisco. “We believe that Wal-Mart is focused on the organic development of its Supercenters, secondary is Wal-Mart International, and third, the Internet,” Dreher said. “We’ve seen a lot of companies [dot-coms] go under and there’s a lot of talent out there. We believe Walmart.com could bring in that talent that would add to their development,” Dreher projected, “rather than have to pay some premium for a highly valued existing operator.”