Wal-Mart (NYSE:WMT) announced last Thursday that it will stop selling Amazon‘s (NASDAQ:AMZN) Kindle range of e-readers and tablets, which indicates that the company is weary of Amazon taking away its sales as well as being just a showroom for its Kindle products.^[1] The retailer will stop carrying Kindles beyond its existing inventory and purchase commitments and hopes that consumers will be more interested in Apple’s (NASDAQ:AAPL) iPad and other gadgets.

Wal-Mart follows in the footsteps of retailer Target (NYSE:TGT) which took a similar decision in May this year.^[2] We expect this decision will have a minor impact on Amazon’s revenues from Kindle as the majority of the devices sold are directly through the company’s website.

See our complete analysis for Amazon

Wal-Mart’s decision is a no-brainer

Wal-Mart’s decision did not come as a surprise as it was increasingly being treated as a Kindle showroom by customers. The device is integrated with Amazon’s online store and makes it easy for Kindle users to shop at Amazon.com. It was evident that the increasing penetration of Kindle devices would encourage customers to spend more at Amazon.com that offers products at competitive prices compared to Wal-Mart or Target.

Forrester Research analyst Sucharita Mulpuru, who calls the Kindle a “Trojan Horse” in other stores outside of Amazon, believes that Wal-Mart “should have made this decision a long time ago”. The timing of the decision ahead of the holiday season means that Wal-Mart stands to lose the holiday season sales.

Revenues from Kindle may see a dip in Q4

Amazon may see a minor dip (if any) in Kindle hardware revenues and the number of devices sold as a result of the move. The dip will influence the decision of prospective customers who may choose to stay loyal to Amazon and buy a Kindle device from the website or instead buy another tablet like the Apple iPad, Google Nexus or Barnes and Noble’s Nook that remain available at Wal-Mart.

The good news for Amazon is that two other marketing channels, Best Buy and RadioShack, will continue to stock the Kindle range. Another positive from this move is better margins from the hardware sales, provided the company is able to retain prospective customers, now with the middlemen taken out of the equation.

However, if other retailers follow suit, it may curtail Amazon’s reach toward buyers who still prefer to shop at physical stores vs. online stores. With seamless connectivity to its e-store provided by the Kindle, Amazon had an opportunity to convert Kindle users into its own users. But, with Wal-Mart pulling back, it will be tougher for the company to do so.

We have a $222 estimate for Amazon which is 15% below the current market price.

Submit a Post at Trefis Powered by Data and Interactive Charts | Understand What Drives a Stock at Trefis

Notes: