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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Apr 5, 2012 1:13AM
I would gladly pay a higher price for the convenience if their customer service wasn't so bad. 
Apr 5, 2012 1:12AM
They must have a real dumb CEO!! Why can't Best Buy match or beat Amazon.com online price on their online sales and make as much money as Amazon makes on these sales!
Apr 5, 2012 1:10AM
Best Buy cant close soon enough for me. This past xmas I had purchased a PS3 and a few games from them. My son opened it on xmas and found that ps3 was not working. They think someone had dropped it on shipping and it broke.  I brought it back and had the receipt and asked for a replacement, they said np we will gladly do that. At the time of the exchange I was asked for my ID even though I had a receipt. I didn't question it even though I thought it was odd since I had the receipt. Took the item home and had no problem with it. Few days after xmas we received a care package for xmas from my auntie in ny. One of the games inside the care package was a duplicate of one we had bought him. Fortunalley she had sent the receipt and we went back to best buy to get another game. Once again they asked for my ID even though i had the receipt and I asked them why ask for it if you already have proof of payment. I had been asked before for ID for a return, but only if I didnt have a receipt. She runs through the exchange and she pauses and asks me to sign a statement letting me know that no more returns would be accepted for 90 days. I asked what that was for, I had proof of purchase for both returns and she says its a new policy. They have a company they outsourced who tracks my returns. I asked her what happens if my computer which is under warranty breaks. She says they will not be able to return it. There are ways around it, like if you have a husband etc. But for them to tell me that I can purchase from them, btw I am a premier silver member, but they wont honor a return if the item is defected. At the moment I tell her instead of the exchange, I was going to take the money back and go to a store that honors my business. By the way the company they outsourced keeps track of all you returns from home depot to jcpennys. And they do look at your history from other stores. But the difference is that you wont be tagged in the outsource system if you have the original receipt. Best buy tags them all even with a receipt.
Apr 5, 2012 1:09AM
The only reason to go to Best Buy is to see an item in person before ordering it from Amazon.com.
Apr 5, 2012 1:06AM
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 1:04AM
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 5, 2012 12:56AM
the typical business model for large electronic stores are they sell you the Big stuff at costs (Yeah, I mean NO profit) and they generate most of their margins on warranties (that you probably don't need) and accessories that are not on sale. don't care if you like or dislike, agree or disagree. its a fact. Too much price competition to make money on just the TV, just the laptop or PC, its all about the incidentals.
Apr 5, 2012 12:51AM

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 5, 2012 12:44AM
Best Buy is a sorry excuse for an electronics store. Their relentless attempts to sell you "extended warranties" and "installation services" are annoying. They prey on uninformed customers, whom they rip off with useless accessories (an HDMI cable carries a digital signal.... an expensive gold plated connector won't make the picture better... even if the high school dropout working at BB insists  it does)

I actually still buy most of my electronics in brick and mortar stores, just not at Best Buy. I purchased my last 2 TVs from a small local. The staff was friendly without being pushy, and could actually answer my questions. Plus they offered me a small discount to close the deal. I had bought my last CRT TV there. When I switched to plasma, I went right back. I also like to go to Fry's, which is basically a big electronics warehouse store. Customer service is non existent but when I know what I need, that's not a problem (it's better than having to fend off yet another dweeb trying to sell you a warranty)
Apr 5, 2012 12:42AM
Best Buy can go ahead and close!! The Winchester store is the worst one I have ever visited and they could care less about customer service.

I use best buy to look at tvs then buy from Amazon for less. Best Buy has become Amazon's showroom
Apr 5, 2012 12:41AM
Even if Best Buy had slightly better prices I still wouldn't shop there. Their customer service is rock bottom. You have an issue with Amazon? They'll make it right, no questions asked. I'll wait a couple days for whatever I need before I spend anything at Best Buy.
Apr 5, 2012 12:41AM
if your the only one left of three, COMP USA and Circuit City both already went bankrupt, than why in  the hell cant you be more profitable than you are? You've got too have taken some of their business. No excuses, you frankly don't know what your doing. why all those runny nose young kids working as sales people. your staff is worst than both your bankrupt competitors. profits should be oozing at your orifices. my god, how incompetent can you.. Board, executives be? I know.... I know... more stock options and golden parachutes for everyone. what is wrong with this picture
Apr 5, 2012 12:40AM
Apr 5, 2012 12:38AM

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.

Apr 5, 2012 12:37AM
Amazon customer service is horrible if you have a problem. They have become another bloated company that outsources their customer service to other countries and most can barely speak English. So, if you have a problem and get 'Peggy' well, good luck. And, don't bother asking for a supervisor because you won't get one - they'll hang up rather than let you talk to one. As far as the Marketplace, yeah, buyer beware. Amazon lets anyone and everyone sell and doesn't care if you're buying a knock-off. I've quit shopping there because of these kinds of experiences. With a little searching, you can find what you're looking for elsewhere and if not at the same price, sometimes lower.
Apr 5, 2012 12:36AM
Best buy sells tvs at reasonable price and I love to just pick it up  on the spot rather than wait .
But , they screw you on accessories !!!!!
Their prices on accessories were ridiculous when compared on line with other retailers !
Apr 5, 2012 12:20AM
I think the customer service at BB is fine.  Plus, when I buy a large screen TV I certainly don't want to schlep it home or have it delivered in a box for me to carry around and set up.  Best Buy comes to the house with the TV, sets it up, takes the old one away along with the box the new one comes in......how does that compare with an online delivery that saves me $100.
Apr 5, 2012 12:13AM
By the way, make sure you clean out your car before taking it to best Buy, in Iowa Best Buy employees have searched cars in areas having nothing to do with the install and then called police when they find contraband
Apr 5, 2012 12:10AM
on the other hand, looking at some of the nightmare stories coming from Amazon customers that have been ripped off by the fly by night companies doing business through Amazon, one is so bad they were delisted from the BBB and given an F rating as well as being sued successfully for counterfit products, copyright violations, fraudulent business practices etc and yet amazon lists them with high ratings.
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