Why Amazon is crushing Best Buy
The online retailer is just too competitive on price, leaving the big box searching for a new strategy.
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
Sirius XM tabletop Internet radio
Best Buy: $149.99
Elite Screens manual projection screen
Best Buy: $129.99
Sony Digital Flash voice recorder
Best Buy: $62.99
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Before Circuit City went under Best Buy's movies were much more competitively priced. On average they were a little higher than CC but they price matched. Ever since CC went under Best Buy's dvd prices have soared. Older dvd should not be so expensive either!!! They need to be more competitive. DVDs/movies gets traffic in their stores and customer service gets people buying additional items. This alone has driven me to amazon and more specifically to amazon prime.
I need to ask? DVD prices are pretty cheap and older stuff is really cheap. BB has not raised prices on DVD's. WOW you don't get out much I see.
and I'm sick of people talking about BB being overpriced. American shoppers are so spoiled with their Wal-Mart mentality they think everything is overpriced. You can't have the lowest price and the best customer service at the same time. Can't happen. If you want to argue that Amazon has great customer service it's not a fair comparison. They have next to no overhead and somebody hit the nail on the head when they said they don't stock everything they sale. Some things come directly from the manufacturer. Some things they don't even have to touch. I'm not trashing Amazon, but it's a poor comparison.
If you want great customer service go to Nordstrom's. But be prepared they don't have cheap prices but they are a wonderful business. Having great merchandise being sold at MSRP can give you the luxury of paying your employees more insuring great customer service.
Go to WalMart see what they pay. It's very very ugly. But hey you get rock bottom prices on Chinese goods.
I have to say this. Customers need to be educated about retail. They are generally clueless about how it works.
Someone here complained about the horrible selection of CD's at Best Buy. Blame it on downloads. It has killed the record store. Notice FYE is still around but that's because they BOUGHT every other chain. Their prices are higher but if you want to browse and touch and see a disk you HAVE NO CHOICE. Some towns have a few locals stores but not many. Most of the big chains are gone forever. The worst part for me is the song you download is not even the same quality as a disk. They compress the tracks to make for faster download times and to save space. A true audiophile will pass.
Same will DVD's. You better have a fast internet connection if you want to stream.
The Geek Squad is overpriced, the kid ran a scan on my laptop for $70. Came back and said we can reboot everything for $300. No explanation why? They also lost my power adapter for my laptop and I never got an answer. "Oh, um it might have been given to someone else." They attempted to give me their used adapter as a replacement when I just spent over a grand on the computer. I told them I wanted a new one for their mistake and the employee told me that $80 was expensive for this and he'd have to consult with the manager and she'd call me back. Luckily she okay'd. Best Buys dvd's are also overpriced, Jurassic Park set was $47, Amazon was $29.99. Tough decision there. The workers are great in my town though, but I also don't expect them to stand and chat for an hour like some expect. Really disappointed with online prices and selection also.
Gee had you walked into bb and told them the price of Jurassic Park they would have price matched. And that is NOT the regular price of J P set on Amazon.. BB had it on sale also. BB had the deluxe set of Ben Hur for $10.99. So just because some things are less it's not always the case. And what the public doesn't know is the prices and promotional prices are dictated by the distributors NOT AMAZON. All companies including BB and AMAZON, Target etc get paid back when they sell CD's and Movies below regular retail.
Dunn & company are done! I read Mr. Dunn's online comments, "..we have made all the right decisions...it is the economy.." nothing like a moron in denial LOL. It appears there are BestBuy mangers with plenty of online time on their hands today. I assume not alot of info on those tracking sheets today huh boys and girls? Oh my God its MSN against us, no it is Amazon's taxless sales, no its the economy. If Bestbuy thinks providing better customer service will re-generate sales on their overpriced products/services then I got a bridge for sale LOL. Your store sign says: "BestBuy", so if ya gonna talk the talk then be prepared to walk the walk (looks like to the unemployment line) Apparently there is such a thing as karma, btw my name is not Earl. Bye...BestBye *BestBuy crushed BestBuy*
I told him I would refund him and if he would send me the item back. He kept my item, got Amazon to refund him the money back, I tried to contact them unsuccessfully for almost a month, so I left. If you want to buy items on Amazon it is ok, if you want to sell items watch out, they will not answer you.
Not only are prices higher but Best Buy rarely has the good stuff in stock.
Milhouse - many people don't want to pay for customer service. There is NO customer service at Amazon, but that isn't hurting them.
Yes, people would prefer a computer over a human if the price is low enough.
Just imagine if they gave you a discount for using self checkout at the grocery store. Many more people would CHOOSE to use those lanes.
I think we are simply seeing the revolution of technology playing out. You can now check prices at competitors as you shop. And why do we need a middleman to house the goods? Let the goods stay at the manufacturer until they are sold, then ship directly to the consumer.
I can imagine stores of the future that only have display models, and you actually get the real item shipped to you.
It's not always about price. Actually price is only one very small piece of the equation.
SERVICE SERVICE SERVICE! If a customer gets great service at a box store, including returns, refunds, techinical expertise, free shipping, then the customer will be loyal for a few dollars more, maybe even many dollars more. Why are the Apple stores so popular? Great products, but more importantly GREAT service!
Why does this common sense approach of customer service in the business world always get lost in the shuffle - companies get greedy on profits, hiring low labor cost, low level labor, non-existant or poor or poorly executed training programs - then wake up one morning and say, 'gee - my business is in the crapper. I wonder why?'
Actually, Amazon also has better prices on hardware as well. Need a cordless drill? Some lighting?
Face it, on many items, it's just more efficient online.
Best Buy has the problem of not wanting to undercut it's physical stores with it's own website.
I bought a TV from Best Buy online (better deal than Amazon) and it was shipped to the store. It came with a free small flat screen as per the internet deal. That deal was not offered in the local store.
I imagine the local store was none too happy that I undercut them with their own website - and they still had to recieve it and then hand it to me.
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