Best Buy Is Amazon’s Showroom

Sep 13, 2011
J. Webster
Comments Off on Best Buy Is Amazon’s Showroom

So this was common place for book buyers, go to Borders and check out what books you’d like to buy and then go buy them on Amazon for half the price. Now it seems this strategy is taking place across the electronic space, as Best Buy’s sales suffer shows, more people are using Best Buy as a place to touch and look at the TVs or computers they’re interested in and they then go buy them online at a cheaper price. In a nut shell, Buy Buy has become Amazon’s Showroom.

This MarketWatch article was written on March 7, 2011, and proves to be quite prescient, as six months ago when the article was written, Best Buy’s stock price was trading near $32 a share. Now, after their latest earnings report showing sales continuing to struggle, it’s down to $23 a share – off close to 8% today:

Investors shouldn’t assume Best Buy simply needs time to recover. Rather, the threats it faces are likely only to worsen. Take AMZN +0.35% , whose relentless growth has undercut the raison d’être of specialty retailers. That is true both in books—where Borders Group recently filed for bankruptcy protection—and in electronics.

Indeed, Amazon’s electronics and nonmedia revenue rose 66% to $18 billion last year, helping it lift market share in different segments. Its share of LCD TV sets, for instance, nearly tripled, to 3.7% at the end of 2010 from 1.3% in 2007, estimates research firm Traqline. Its share of portable audio devices rose to 11% from 4.6% in the same period.

A key to that success is that Amazon beats bricks-and-mortar retailers across the board on average electronics prices, a Wells Fargo study showed. Best Buy, on the other hand, traditionally hasn’t tried to compete on price alone but has preferred to highlight its tech-savvy staff and wider selection.

The questions becomes, who do those people in the blue shirts that walk the aisles of Best Buy and tell you all the advantages and disadvantages of certain products? Do they actually now work for Amazon…

Plus, are we going to need to buy DVDs or video games anymore? Want everything be downloaded digitally in the coming years? You won’t need a physical store anymore when that takes place.

Of course Apple and Apple stores are hurting Best Buy too, but how is Best Buy going to recover and what form will stores take in say 10 years. People like to shop and browse, see stuff and see other people, but what with the ease of online shopping, how will brick and mortar stores make money. Are they going to have to charge you to enter the store? Will stores become smaller, like Apple stores? What do you think?

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