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
More from Top Stocks
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.
I used to like BB till one day last year I went to return a battery charger I had purchased day before. Package was unopened and undamaged. I was also a rewards card member. I had the receipt. I had my credit card with my name and ID on and the number matched the ones on the receipt. They were going to put the money back on the same credit card that was used for purchase. They told me they need to see my ID. It seemed odd because no money was exchanging hands. But I said ok- no problem- here's my Drivers license.
AND THEN to my surprise,and despite my protest the clerk punched in my DL number into BB's computer. I said I did not consent you to enter my DL number. I don't know who uses it, where it goes and if even if its necessary. He said its their policy to enter DL number. I didn't understand why. I asked the store manager and she said its BB policy and she cant do anything about it and that if I had an issue I needed to call their 1-800 number. Basically I was not provided with any help, explanation, use or reason for requiring me to surrender my DL number other than its our policy and if you need to complain you can call our 1-800 number. I was surprised that a company would require you to surrender your DL number for any return no matter how small, with receipt and all. Its seemed to be invasion of my privacy guised under policy. I felt that I was robbed of very important personal information for a ten dollar return with receipt. I decided then never to do business with BB again.
INSULT TO INJURY-Next day I received an email from BB saying that they are sending me this email to warn me about a security breach at another company that handles their data, sounding as if they were doing me a favor by letting me know that they don't know who has my information now. I was so very upset. They require you to surrender your DL info for any return no matter how small and then turn around and send an email warning me that the data is compromised!!!! I went online and found many many blogs with a lot of people complaining about having to surrender vital information to BB.
I knew that with this attitude toward its customers this company can't last. I will never shop at BB and I will be happy to witness this arrogant corporation's decline and eventual demise.
Copyright © 2014 Microsoft. All rights reserved.
As geopolitical tensions threaten to spin out of control, investors are wondering how best to position their portfolios for the global turmoil.
VIDEO ON MSN MONEY
Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.
Contributors include professional investors and journalists affiliated with MSN Money.
Follow us on Twitter @topstocksmsn.