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Amazon.com (NASDAQ: AMZN) is supposed to thrash Walmart (NYSE: WMT) in sales increases this holiday season. That should make Amazon the better investment. Wall St. believes otherwise, though. Over the past month, shares in Walmart are flat, while those of Amazon are down 20%. Amazon’s approach to gain sales has hurt investor perceptions. Bricks-and-mortar has an edge over e-commerce for the first time in years, at least in the eyes of shareholders.

The major criticism of Amazon is that, despite its anticipated growth, management says it is happy to operate on low margins to gain market share for products like its Kindle Fire tablet. Industry analysis shows the world’s largest e-commerce firm will lose money on each unit it ships. Amazon also offers free shipping for many other products, another large expense. And the company will keep prices on most other items it sells low to match sharp discounts retailers like Target (NYSE: TGT) and Best Buy (NYSE: BBY) will offer.

Walmart’s advantage, in the view of investors, is that its U.S. store sales have begun to rise for the first time in more than two years. The company is so large that the revenue increase should be leveraged into better earnings per share. But that perspective may prove to be mistaken. Walmart is no more immune to the bottom-line effects of discounts than any other retailer. Walmart may not have a flagship product like the Kindle Fire, but the level of discounts it will offer on other items will similarly effect its profits.

Holiday sales will yield small margins for most of America’s large retailers — e-commerce and store companies alike. The market’s perceptions of Walmart may be better than that of Amazon, but consumers have little discretionary income now, and that will show up in the fourth-quarter results.

Douglas A. McIntyre