Report: Amazon, Wal-Mart Might Partner

Internet powerhouse Amazon (Nasdaq: AMZN) and brick-and-mortar giant Wal-Mart are reportedly discussing a strategic alliance.

Amazon founder and chief executive officer Jeff Bezos and Wal-Mart CEO Lee Scott are "hammering out details of an agreement that could be announced within six weeks," London's Sunday Times reported.

"Jeff wants to build the biggest, best multi-category online retailer in the world," the paper quoted an executive close to the talks as saying. "He has the technical expertise but not the sales, the customers or the money anymore."

The executive added, "Wal-Mart has the sales , the expertise and the money, but it doesn't have a strong online presence. It's a neat fit but not one that will be easy to pull off."

When questioned about the report Monday, Amazon spokesperson Bill Curry told the E-Commerce Times, "We never respond to rumor or speculation about what we may or may not be doing in the future."

Tom Williams, Wal-Mart spokesperson, told the E-Commerce Times, "We have a policy of not commenting on any rumor or speculation about our business or our business plan."

Mutual Aid

The terms of the deal reportedly call for Seattle, Washington-based Amazon to become Wal-Mart's e-commerce supplier. The agreement would give Wal-Mart, which has struggled to build its own online business, access to Amazon's e-tail expertise in everything from online ordering to home delivery.

Amazon stands to benefit from the potential deal by gaining a cash infusion, a presence in Wal-Mart's 4,500 stores and a percentage of any sales made through the retail behemoth.

The paper said it is unlikely that Bentonville, Arkansas-based Wal-Mart would take an equity stake in the e-tailer.

Off the Wall

Although Wal-Mart is a household name in the brick-and-mortar world, Walmart.com, its joint venture with venture capital firm Accel Partner, has had mixed results in the e-tail sector.

According to Internet research firm Media Metrix, Walmart.com was the fastest growing online retail site during the 2000 holiday season. For the five weeks leading up to December 24th, Walmart.com saw a 640 percent jump in traffic, to 370,000 average daily unique visitors.

However, last week, Walmart.com announced that it was laying off 24 employees, or 10 percent of its workforce, and eliminating sales of cosmetics, low-priced clothing and other low-margin items.

Walmart.com was down most of October for a scheduled remodeling.

The Kiosk Question

The Sunday Times did not say how Amazon would establish a presence in Wal-Mart's brick-and-mortar stores, but analysts believe such a presence could take the form of Internet-connected kiosks.

"It wouldn't surprise me if in five years a number of online merchants used kiosks to expand their presence," IDC analyst Joe Williamson told the E-Commerce Times in February.

However, before Amazon ventures into the real world, it will have to work out the logistics of returns. Yankee Group analyst Christine Loeber told the E-Commerce Times last month that shoppers who purchase an item at a kiosk in a brick-and-mortar store would not take too kindly to being told they have to return the item via mail for a refund.

Although Web shoppers today are used to being told that they have to return their purchases through the mail, in five years that approach will be "completely unacceptable" to consumers, according to Williamson.

Dynamic Duo

Wal-Mart would not be Amazon's first real-world partner. Last August, Amazon formed an alliance with Toysrus.com to operate a co-branded site.

Industry observers believe the joint operation was at least partially responsible for the demise of competitor eToys, which announced last week that it was filing for bankruptcy and closing down.

The Amazon/Toysrus site has consistently topped eToys in traffic. Over the holiday season, Amazon/Toysrus took in 123 million visitors, five times as many as eToys, according to Nielsen//NetRatings.

In early trading Monday, Amazon's stock was up US$2, or 20 percent, at $12.