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
toodles71
Apr 5, 2012 11:39PM
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whiskey fire your dynex tv is made by sony for bestbuy exclusively.that is why it is more on amazon.for 300.00 dollars look at amazon and see what you could have gotten in a samsung,lg,or even sony.could have gotten bigger and better brand.
toodles71
Apr 5, 2012 11:20PM
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people keep complaining about that consumers today are so price conciense?seriously why do you think they are?gas has almost tripled in the last 5 years,food has increased by 20% on average across the contry.unemployment is at all time highs.seriously;then​ you blame people for being price hunters?you have to be today.in case you havent noticed while everything has increased in price employess wages have been stagnent or decreased.that is unless you are a ceo.then you blame the consumer for small bussiness decline and outsourcing to china.no that is the government! ever hear of NAFTA?Clinton started this decline in job outsourcing,but people where to busy living it up in the 90's to pay attention to what was really happening.then in the middle and early 2000's greedy banks,and realtors,and contruction companies kept adding to the underling problem.now we see the outcome of that don't we?yes that was the republicans mess up.point is poloticians,banks,an​y business today only cares about on thing!PROFIT and they will screw anyone to get it.poloticians just screw the people to give it to their campaign contributors.OBAMA anyone.So now people have to try to save money anyway they can just to live a normal life.Or at least get by.the whole point of this article is to say that people are not going to take crap from giant corporations anymore.they want to charge us premium prices then give garbage service.and just because they made tons of money off of the consumers for years doesnt mean they will continue to.if you dont provide adequit services or products to consumers they wont buy period!just look at gm.they made junk for years and where arrogant thinking they will always be on top.wrong wheren't they?now they make cars that are reliable.get good gas mileage.amazing how bankruptcy woke them up huh?
BBYEmployee
Apr 5, 2012 11:01PM
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I currently work at Best Buy, have been for the past few years. One thing I've noticed is that customers are NOT dumb. Online resources have given people tutorials, reviews, discussion forums etc. My clients I will admit, sometimes know more than I do. No longer do they need a technician to come in to their homes and plug in their TV for $200 (exaggerated but you get the point) because there's a youtube video for that. 

The big push right now is the in-store credit card, accessories (you know, the $5 HDMI cable we sell for $70 lol), setup services and protection plans i.e. Geek Squad. There's no margin in an iPad so we have push all these other things on you. I literally just looked, and we charge $40 to 'install' a ZAGG shield and unbox your tablet, this does not include the shield. Seriously?

I understand there are some clients that have $5000 worth of home theater stuff and just don't want to deal with it or don't have the time. But mostly everything is plug-n-play. We are actually given 'guidance' from leadership staff to basically make the customer believe they need to have an engineering degree to operate the product.

Here's what most people do not know. We don't make commission, BUT we are tracked in how much we sell. It doesn't matter how well your customers are satisfied with their in-store experience, these numbers determine your worth. These are broken down into; hours worked, Revenue and Margin per hour & per transaction, accessories sold, Geek Squad services sold, black tie protection plans sold and how many credit apps you sign up. We seriously hold training sessions on how to approach customers to catch them off guard. It's no longer about answering your questions or listening to your needs. We are trained to top-down sell to EVERYONE. Not looking for 3D? Too bad we're showing it to you anyways and sell you $100 HDMI cables. Best Buy gets paid just from a customer signing up for a credit card (approved or not, it's literally free money), that's why it's pushed upon the customer. Although we offer 0% financing, we also have lower balances and higher interest rates than your regular Visa or Master Card.

I think people will always need some place to go to like Best Buy because people want to see, touch and hear their product before they buy. Online reviews can only do so much. I would love to see the competition from small business owners if Best Buy went under because Best Buys new model seems to becoming the sneaky car salesman approach. 
jaxguy
Apr 5, 2012 7:59PM
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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.

jaxguy
Apr 5, 2012 7:30PM
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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.

jaxguy
Apr 5, 2012 7:23PM
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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.

jaxguy
Apr 5, 2012 7:17PM
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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.

GunSlinger221
Apr 5, 2012 6:31PM
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       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  Party Thumbs down *BestBuy crushed BestBuy* Embarrassed
blueangel1959
Apr 5, 2012 5:43PM
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I am all for Amazon except that as new technology comes out, I don't want to just by sight unseen.  I want to actually see it work first.  Also, it is very hard to get deliveries when you work full time and live in an apartment.
GTS1004
Apr 5, 2012 5:12PM
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My Prediction is that Amazon will drive all competitors out of business.  Then they will be forced to open brick and mortar stores so people can check out products.  This will then raise costs overall or lower their profit margin significantly. 
j mm

Logical Dude
Apr 5, 2012 5:11PM
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Why would I drive to Best Buy when I can order the same thing for less on Amazon and have it delivered for free?  Amazon saves time, money and gas.  And you won't be bothered by pimpley kids asking you if you've found eveything alright.  I was going to buy a new vacuum from Best Buy for $159 but instead purchased a replacement belt for my broken one from Amazon for $3.59. 
Sapphire .
Apr 5, 2012 5:05PM
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Amazon is not a good place to sell, I sold on Amazon for a couple of months, I left ebay, because pay pal was double charging me for purchases.  They never fix it, so I went to Amazon, had some good sells, the percentage they take are alot higher then ebay though, then a customer said I sent him the wrong item.
 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.
Lkwd67
Apr 5, 2012 4:41PM
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Not only are prices higher but Best Buy  rarely has the good stuff in stock.

 

Ryan in Texas
Apr 5, 2012 4:24PM
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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.

Milhouse597
Apr 5, 2012 3:59PM
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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?'

Logiks
Apr 5, 2012 3:43PM
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I've gone to Worst Buy on several accounts with a couple of hundreds of dollars burning in my pocket, simply looking for something to come home with that's new, fun, and awesome. Every time I come home empty handed and disappointed that I couldn't find something of worth to buy there. Between their selection, full blown retail prices + tax, and horrible customer service why should I shop their besides the idea of physical convenience? 

I love Amazon because for one, they have absolute best deals, but I think a lot of people are forgetting to add the Reviews!! I LOVE reading customer reviews on Amazon, as I feel most people are accurate in their descriptions confirmed once I receive the product myself. I am totally willing to pay the Amazon Prime membership because I order so many various items, free shipping and adding family/friends on is a no brainer. 
By-the-numbers
Apr 5, 2012 3:31PM
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I have had terrible experiences every time I go to Best Buy and my wife simply refuses to consider going there for ANYTHING!  I made a purchase there around the holidays and the laptop I purchased failed weeks later.  When returning to the store to address the issue they summarily dismissed me and said it had to be handled by sending back to manufacturer and no exchange or replacement was offered.  It was my last visit to Best Buy so Bye Bye!
Ryan in Texas
Apr 5, 2012 3:27PM
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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.

makaveli72
Apr 5, 2012 3:26PM
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Let's talk about Wal-Mart. I'll bring the pizza and fries.
Someone
Apr 5, 2012 3:10PM
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I shop at Amazon all the time, because of the prices and quick service. Best Buy customers service is not all that great, in some stores. I visited one Best Buy to purchase a notebook or laptop; was there for over 30 minutes. and no one came to ask if I needed assistance. I went up to a sales persons and told him that I needed assistance, and he said okay, but never provided any assistance. I went to another Best Buy about 2 miles from that store. I found the sales persons to be a little more friendly and willing to provide assistance. So I purchased the needed item. I could have gone to Wal-Mart, but found what I wanted online, and decided to go into Best Buy. Now, I shop online with Amazon and enjoy shopping with them. They make one to feel important, and I do not mind shopping with them; Christmas, Easter, Birthday, Graduation, and more.
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