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
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.
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.
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.
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.
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.
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.
Copyright © 2014 Microsoft. All rights reserved.
Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.
Serious issues like drought and the deterioration of the developed world spell opportunity for this industry leader.
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.