War against Amazon Part 1: BestBuy

Besstbuy in Winterfell

Like the Stark and Lannister families, there is a epic battle waging on in the field. In this case we are watching the likes of Amazon (AMZN), Bestbuy (BBY), Target (TGT), Google (GOOG), hhgregg (HGG) and the likes of every other retailer as they battle it out for a larger piece of the pie in the retail field. Who is the bad guy in this story? That is up to debate from a consumer standpoint but ill tell you what, every retailer has their sights set on Amazon.com.

Unlike almost every financial blogger, I don’t think I need to give introductions on every company and what they do on every single post, so ill get right to it. Amazon has been growing at a staggering rate for many years, revenue keeps increasing and margins are razer thin. Just like the largest river in the world that its named after, everything seems to be flowing though it, tangible products, digital content, services you name it. So its no wonder that businesses of all varieties are being affected by their seemingly low online prices. Things are looking to get ugly though, many companies have had it with amazon and it’s looking like this is the year that everyone attacks back in full force. We are going to be treated to some good entertainment folks.

Lets start off with what Bestbuy is doing since it seems to  be the posterchild company of Amazon induced destruction. Bestbuy certainly need to make some changes but is in no way stuck in the downward spiral that every media outlet wants you to believe. Bestbuys some billion dollar loss last year? Do people actually beleive this was from lost sales to amazon? Folks, it was the carphone warehouse deal, its more of an apparent loss that a loss, I look at it as an investment. Its the journalism that is setting the tone for bestbuy, not amazon.

Back to the point, bestbuy, showrooming. I swear, if I hear the word show-rooming again I am going to puke, It seems like the only thing these highly skilled journalists can come up with is show-rooming, show-rooming, show-rooming and how its the end to brick and mortar as we know it. I have read blogs where people say they walk into a Bestbuy and see every customer walking around with online printouts blah blah blah. Mike Mikan earlier this year said he will combat show-rooming and it will be top priority. So whats the plan? Price match Amazon.com, simple as that. Come into a Bestbuy with a printout from amazon? Don’t worry, the store GM will gladly take the business from Amazon. Its a simple and effective strategy, it will boost same store sales and get in Amazons pocket at the same time.

That’s going to hit margins you say? Don’t get me started on margin, just look at Amazons margin, 1%. amazon P/E is 85, apparently margin has nothing to do with it. Growth is what is driving Amazons stock price, its the revenue. I am not saying Amazon is not extremely proffitable, im saying a P/E of 85 is kind of ridiculous. Show-rooming is a price based concept, its the perception of getting a better price somewhere else, take the price advantage away from Amazon and they will have nothing. So let me reiterate, Price matching Amazon.com, effective stratagy. From what some studies say, Amazon only beats Bestbuys price on 10% of thier product line anyhow.

Bestbuy logo stimpack

Stimpacks for the blue team

Online presence, this is actually a part of Bestbuys strategy that is getting overlooked. Yes, I remember a year ago visiting Bestbuys website, it was horrible. Things have changed since then and the company is working hard gain business from online shoppers. Bestbuy took a page right out of Amazons book, Marketplace. That’s right, if you didn’t know, Bestbuys website now has a marketplace, where other online retailers can sell there wares from Bestbuys website, just like its done on Amazon.com. In no way is Bestbuys marketplace as extensive as Amazons, but it is picking up the pace, so keep your eyes peeled, the company not only means to match Amazons online presence, it looks to beat it.

Employee training. Lets look at one one of the only good things Bestbuy has done in recent history, Bestbuy Mobile, their cell phone portion of the business. There is no doubt that the wireless industry is extremely lucrative, and Bestbuy seem to be the only company making moves in the industry. The mobile department is a sort of microcosm of the entire company, it has its own management team seperate from the actual management in the bigboxes. Their training is also worlds beyond the training normal employees on the sales floor get. For one, if you are to work in Bestbuys cell phone department, immediately after hire, you get flown all over the country for induction training’s before you even set foot in one of the stores. Bestbuy will be rolling out this training model to all store employees in the near future, by near future I mean end of July or early August. On top of this, the company is spending 60% more training dollars per employee. People, its something Amazon does not posses and Bestbuy will be training their employees to the 9′s to make sure their customers are the most satisfied in the industry.

Store remodels. They are calling it the Connected Store Format. Chances are you have not seen one because well, they just started rolling it out. It is said that it will take till the end of 2013 to get all stores remodeled. It is impressive, there will be a giant Apple’esqe genius bar front and center where the geeksquad will reside, Big screen TV’s all around like its Cowboy Stadium. Customer service will also be absorbed by the geeksquad and trained to help the customers with the more basic needs. Job Codes are getting revamped, the anouncement made last week that 2600 folks will be laid off, that is part of this restructure.

In store pickup. With Bestbuys weight behind their online store, they will also be focusing on instore pickup. Not only are they going to price match Amazon, they also have the advantage of having stores sprinkled all over the country for those who would rather not wait for their stuff to come in the mail. Just last week I had a client with a failed hard drive and needed his machine up immediately, so I went to Bestbuy. At the time I did not ask for a price match but the premium I paid for picking it up at Bestbuy was a few dollars. Having a store nearby is valuable to me personally, in the future with price matching and instore pickup, this will dig into at least half of my online purchases from other e-tailers.

This is all good for Bestbuy if they can deliver and I think they can. This is not good for amazon, especially comming from the largest brick and mortar technology retailer on the planet. After Bestbuy sets this all into motion it will be interesting to see how Amazon will respond, they cannot undercut prices after Bestbuy price matches, doing so would be suicide. But hey, you never know.

 

End of Part.1 stay tuned

 

 

Jerm

About Jerm

Jeremiah Johnson is the tall, dark, handsome Co-Owner of IcerTechnologies, an I.T. Hardware and Software company. A stock trader and technology enthusiast, Jeremiah is always digging deep into industries to see what the future holds. ThingsMicro.com is his personal blog where he writes about anything he finds interesting in life. Readers beware of poor, unedited grammars. His opinions are his own. (I like Turtles)