Daily Archives: June 8, 2012

Amazon is Not a Threat to Best Buy, but Amazon, Walmart, & Target Are!

Best Buy is having problems. It’s closing 50 stores and, according to some analysts, could close over 200 stores in the next few years. For some stores, the best they can hope for is that they are mistaken by Chuck’s enemies for a BuyMart in off hours and blown up so that they can at least collect the insurance payout. For others, they are going to find out what Circuit City found out when their circuits started frying.

Why is it having these problems? According to recent articles, including this one in Forbes which says that Amazon is Not a Threat to Best Buy, there is speculation that Amazon, and other big web stores that are offering the same brand name consumer electronic devices at greatly reduced costs are stealing sales and stealing Best Buy’s customers and profits. And while this may be the case for accessories (like USB drives), phones, MP3 players, and even netbooks and laptops, where shipping fees are small (compared to the total cost of the purchase), it’s definitely not the case for larger appliances and electronics product because:

TV profitability is minimal and getting worse online. Shipping costs go up, TV prices go down, and accessories are hard to sell online. This does not make for a profitable business. We continue to believe third party sellers are not selling big ticket on Amazon like they were because they are losing money. Some categories remain great, like cameras and headphones, but ultimately, pick up in store to avoid shipping will work and only become more prevalent post the sales tax arbitrage is over.

Unless I want a previous generation big-screen HDTV and can get a kick-ass clearance deal, I’m not ordering a TV online because the shipping charges will probably be $100 or more, and if something is wrong with the TV, I might have to pay the same again to send it back. It’s not worth saving $50 on the purchase price if I have to pay $200 in shipping. And while the average consumer might fall for a red tag sale where you inflate the base price so you can take 30% off instead of 10%, they’re going to see the grand total and also balk at an online purchase of such an item.

However, this doesn’t make the case for buying that new big-screen HDTV at Best Buy. Sure, they have a bigger selection than most other stores on the showroom floor and it’s usually the case that they have at least one employee per department who knows more about the products than anyone at a big-box department store is going to know about the same product, but, in today’s marketplace where everyone wants to GroupOn the TeamBuy, debt is high, income is flat, and the possibility of losing your job is always around the corner, no one wants to spend more than they have to for a commodity item. So, now that they can see something in the store, decide they want it, check Target’s mobile website, see the same product is 10% cheaper in the Super Target down the street, why would they get it at Best Buy? Especially if they are not purchasing an extended warranty? And if they happened to see that same product at Walmart last week 15% cheaper? Plus, the fact that it’s probably on Amazon for 10% cheaper tells them that if they don’t want it today, at least one big-box department store is going to have it cheaper. So, while Amazon on its own is nothing to fear from Best Buy’s perspective, Amazon & Target or Amazon & Walmart combined are.

Until Best Buy can offer a better buying experience at the same price as these big box stores on all the big (ticket) items they sell, the incentive to buy at best buy is not going to be there. Especially given the state of customer service at these stores recently. Consider the plight of a customer at the Greenville, South Carolina store who was subjected to porn when visiting a best buy store, or the doctor who was repeatedly ignored AFTER indicating he was there to purchase a $200 product at that store on that day. In fact, when I think about it, if they don’t fix their customer service issues, they probably won’t survive long enough for the Amazon-Target or Amazon-Walmart tag-team to take ’em out. Especially since you can’t buy more than one item through their Canadian web store at a time! It’s a shame. They used to be great. Now …