Why Amazon is crushing Best Buy

The online retailer is just too competitive on price, leaving the big box searching for a new strategy.

By Kim Peterson Apr 4, 2012 3:25PM
Image: Amazon.com logo © EMMANUEL DUNAND/AFP/Getty ImagesBest Buy (BBY) is desperate to turn itself around, terrified of joining Circuit City and CompUSA in the electronics retailing graveyard.

But the company can't compete in one key area: price.

A new study by Barclays analysts shows that Best Buy's online prices are 4.2% higher than Amazon's (AMZN), on average. The analysts compared prices on a shopping cart with 100 items sold on both companies' websites and found that Best Buy's prices are higher -- before tax and shipping.

It gets worse when you add tax and shipping to the mix. Amazon doesn't charge tax at all in most states, and customers who subscribe to Amazon's Prime membership plan don't pay for shipping on many items. Amazon often offers free shipping on orders of more than $25.

Then the analysts compared each item on the sites. They found that on an average per-item basis, Best Buy products were 10.7% more expensive than Amazon's items.

Best Buy was able to beat Amazon some of the time -- on about 4% of the products in the survey -- but Amazon won on price on 54% of the other products. (The rest of the time, the prices were the same.)

Savvy electronics shoppers always stop at Amazon when considering products. They'll price-check around, and maybe they'll stop by a Best Buy store to scope out what they want to buy. But when it's time to make the purchase, not enough people are choosing Best Buy.

"The company is gradually becoming a physical showroom for online retailers," said Wedbush Securities analyst Michael Pachter, according to Cnet.

Where can Best Buy compete? In service. So it's changing the way it pays employees to focus more on customer service. That's the area where Circuit City collapsed. Employees were absent from the floor and didn't seem to care at all about helping customers.

The following video has more details on Best Buy's changes.

Post continues below.
Best Buy knows it also must compete better online, and to do that it's sacrificing some of its big-box stores. The company will close 50 stores this year and has a goal of increasing online revenue by 15%. It's going to open 100 small stores focused on mobile and niche electronics.

Where is BestBuy.com weakest? In the television and home theater category, analysts said. None of the 41 products in that category were cheaper at BestBuy.com. And that's the category in which Best Buy and Amazon overlap the most.

The analysts looked at the Optoma Home Theater DLP Projector, for example, and found it at $949 at Best Buy and $826 at Amazon.

Best Buy is trying to get more competitive on shipping. Some items on its website qualify for free shipping, and customers also have the option to pick up orders in a store. Best Buy will likely expand free shipping for some of its Reward Zone loyalty customers.

"In our view, the free shipping option on Amazon.com represents a compelling value proposition to consumers, who we believe remain very price-conscious when purchasing consumer electronics items," the analysts wrote in the report.

But on taxes, Best Buy just can't compete. Generally, a company must charge online sales taxes if it has operations in the state a customer orders from. Best Buy has stores in all 50 states, so it must charge the tax.

The analysts didn't seem too enthused about Best Buy's prospects. "We believe Best Buy will continue to be negatively impacted by the relatively low level of innovation in key categories such as TV, computers and gaming for the foreseeable future," Barclays wrote. They have a $25 price target on the stock.

Best Buy shares were down 2.3% Wednesday to $23. The stock has fallen 20% in the last year.

Here are a few other products that Barclays compared:

Logitech QuickCam Orbit AF
Best Buy: $134.99
Amazon: $91.05

Sirius XM tabletop Internet radio
Best Buy: $149.99
Amazon: $110.16

Elite Screens manual projection screen
Best Buy: $129.99
Amazon: $74.31

Sony Digital Flash voice recorder
Best Buy: $62.99
Amazon: $50.95

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430Comments
Apr 4, 2012 3:52PM
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So where can Best Buy compete? In service. So it's changing the way it pays employees to focus more on customer service. That's the area where Circuit City collapsed. Employees were absent from the floor and didn't seem to care at all about helping customers. 
At worst buy, they do EVERYTHING in their power to get you to sign a service contract.  They also have one of the worst customer services on the planet as far as I'm concerned.

Tech savy people go to microcenter, newegg, amazon, or even tigerdirect before even thinking of going to a Best Buy.
Apr 4, 2012 4:04PM
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Best Buy has joined the ranks of circuit city in customer service. They have awful personnel who are to interested in talking or flirting with other employees. I had to track down a manager to get some help with a laptop I was interested in. He then handed me off to salesperson who was very bored when answering my questions. I ended up buying the same laptop at amazon for 225.00 dollars cheaper. I also chatted with a customer representative from the store amazon was representing who answered all my questions eagerly.

Amazon will get all my electronic business from now on.

Apr 4, 2012 6:00PM
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The thing I hate about Best Buy is they have people who will ask if you need help, but they aren't employees of Best Buy.  They are Dish Network sales reps who try to sell me a dish/cable package.  It is little stuff like that I get annoyed by when I shop there.
Apr 4, 2012 5:32PM
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I like best buy for one reson lets me look and play with new products that i cant do on amazon if the price is the same i will use bestbuy and pay  the sales tax.  its nice to go and get an item right away. 
Apr 5, 2012 8:57AM
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Worked there for 4 years on the "Geek Squad". Very unethical place to work. Would rather I milked some poor old couple out of a few hundred selling services to "fix" a 5 year old PC when they could have just bought a new one for half the cost. Also selling 2 dollar cables for 30 to 50 dollars is just highway robbery. Go Amazon or visit your local electronics boutique. You'll get better service and probably a better deal in the long run.
Apr 4, 2012 8:29PM
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Forget service - Best Buy doesn't provide decent customer support
Apr 4, 2012 6:52PM
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so happy to hear best buy is going down the crapper. i bought a computer that they screwed me on the warranty about 12 years ago.
Apr 5, 2012 1:23AM
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I used to shop at Best Buy for many of my electronics because I genuinely thought they were a great company, but since their customer service department nearly ruined my gift plans for my friends and family in 2007, I have never shopped there again.  My hard earned nearly $3000 on average per year for 7 years until then wasn't important enough for them to fix a simple shipping issue that they caused.  I also had many times before had several issues that I quickly got over because I was used to shopping there... everyone makes mistakes sometimes...  and life goes on, but this was that straw.  So, I told a friend, that told another friend, that told another friend and eventually none of us went there again, not on Black Friday, Cyber Monday, or any other day, because we all had similar disgusting customer service experiences with Best Buy.  From floor rep to the highest manager we could speak with....terrible.  Who cares though, who am I?  I'm sure they have plenty of customers who will still shop there to make up for me and my friends.  Best Buy please understand the customer may not always be right, but if they are just asking for a simple fix you should be, at the minimum, respectful.  Maybe it was because I didn't spend enough money at your store or even bother to mail in any rebates you offered.  Maybe it's because when I did mail rebates in and they weren't acknowledged, I didn't complain, I just went on with life.  I don't know.  It seems to me that because I wasn't screaming, yelling, and acting like a complete jerk, you ignored me.  I wasn't threatening to call the DA or BBB, so you blew me off.  So, I didn't raise hell.   I didn't act ungentlemanly.   I simply and politely understood that you weren't going to attempt to help me, and, unknown to you, found another vendor who would.
Apr 4, 2012 6:08PM
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I hope all you people are happy when all the Best Buy stores are gone with all the thousands of jobs and the big empty stores in big empty parking lots.
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I ordered a PS3 for my brother from Amazon and it never arrived. There was a problem with the shipping, which wasn't my fault or Amazon's. I told them that I had never received the package and after about 25 minutes on the phone they sent me another one. Absolutely free. They lost $300 in that deal, but they now have a lifetime customer.
Apr 4, 2012 9:34PM
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I will NEVER AGAIN shop at best buy. Their service is horrible, and their sales staff is pushy. The prices are rediculous and the selection is pretty poor as well. If I want to know something about a product, I GOOGLE it. There are sites that offer product comparisons. I am an Amazon Prime member, and I have ordered lots of products with FREE 2 DAY SHIPPING and I'm on a first name basis with the UPS driver. The customer service is second to none and you can't beat their ease of returning what you don't want or like.

 

Welcome to the 21st Century, Best Buy.... just another casualty of e-commerce. I won't miss you.

Apr 4, 2012 10:28PM
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I was a Best Buy shopper until they retooled all their employee's.  In the Billings Montana store they switched the trained sales reps for minimum wage kids with almost no product knowledge.  It must have saved them millions dumping all the older trained sales reps.  Now if you ask questions in the store all you get is dumb looks.

 

Great strategy, pricing was not the biggest issue.

 

 

 

 

Apr 4, 2012 5:23PM
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Most big companies really don't care about their customers.  I bought a new side by side refrigerator from Sears.  They delivered and installed it.  Two days later and it still didn't get cold, best it could do was the mid 40 deg.  Called them and they told me I had to send it in for warranty repair and that it would take a week or more, if they had the parts.  NOT!  I told them to get their butts over here and get this thing and to bring another with them.  Stand your ground and don't take no for an answer.
Apr 5, 2012 1:04AM
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The advantage of shopping at a brick and mortar retailer is to enjoy personal customer service. Best Buy lacks in that department in addition to the deceptive sales practices and constant pressure to buy extended warrantees. They deserve to hit the road.
Apr 4, 2012 4:36PM
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People are forgetting one major factor as well.  Returns at Amazon are NOT free.  Shipping is on you unless the mistake (ie wrong item shipped, NOT broken item) is Amazons fault.  So buy your big screen tvs, your stereo recievers, etc from online retailers and then spend a small fortune returning them to get it replaced (let alone the wait time of waiting for the item to arrive there, for them to check it in and then for them to ship out a new one to you).  Online retailers ARE nice in some areas, but I would NEVER buy a big ticket item from an online retailer.
This is actually incorrect, I recently purchased a TV from amazon and not only did I get free shipping and no sales tax, the driver was required to discard my packaging for me if I wanted.  Plus they said within 30 days I can return the TV for any reason without shipping or restocking fee, they would send someone, even with packaging and take the TV back. 
Apr 5, 2012 1:06AM
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Best Buy's employees seem more interested in selling you extended warranties than helping anyone find the right item. I can't get out of there without saying no a couple of times. I go on-line because it's cheaper and I don't have to feel like I'm protecting myself against getting ripped off the entire time. Their employees either don't know or are trained to flat out lie about things, it's disturbing that anyone is listening to them. You'd think they worked on commission. You want to save Best Buy? Stop acting like the electronic stores you put out of business.
Apr 5, 2012 12:51AM
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Best Buy is terrible in the cust. service area. When you do get help, it comes with a smart **** attitude and a "sell u something even if its not what your looking for mindset."

I bought a computer at Best Buy only to find out they weren't stocking what was advertised on the floor. To make matters worse they parade out some crap you didn't want and tell you it is just like what you were looking at. And of course they want to tie you into some piece of sh*t service contract that they wont honor without fighting tooth and nail with them. I urge everyone to never purchase anything at Best Buy. Not even the bullsh*t edibles placed along the checkout lines.

Apr 4, 2012 6:41PM
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Through my work experience, every company I worked for stressed the importance of customer service. Although they know this, they oftentimes make up so many policies that it causes more harm than good towards their efforts to deliver great c.s. They also want to hire all these book smart people who have no real people skills. Not everyone is not cut out to deal with the different personalities that you have to come in contact with on a daily basis. I had a problem smiling when I first started out and I didn't realize it until a customer saw me smile one day. He said that he always thought I was mean because I never would smile. From that point on I made sure that I would greet all customers with a smile regardless of how I felt or how they treated me. A  c.s. representative must enjoy being one because people can spot a fake a mile away. As I get older I see that good work ethics are becoming extinct and less appreciated in the workplace and this saddens me. Even the managers of these establishments have more issues than the employees. It's pitiful.
Apr 5, 2012 1:15AM
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Best Buy is a sorry excuse for an electronic store.  More than half of the crew don't know what the f-u-k they are talking about and are rude ****-s! (including you job -concerned)  So go join Circuit City and Comp USA in the graveyard.
Apr 5, 2012 9:29AM
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I used to shop Best Buy.  But their poor customer service and responsiveness to a product with one of their extended warranties put an end to that.  I had to get a lawyer involved to get their attention.  Other than more people losing their jobs, it won't bother me if they go belly up.
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