In a very under-the-radar manner, there is big news brewing for Best Buy Co., Inc. (NYSE:BBY), a bill in the Senate that could drastically level the playing field between it and Amazon.com, Inc. (NASDAQ:AMZN), eBay Inc (NASDAQ:EBAY), and other online retailers. This bill would require that all purchasers of online goods pay sales tax on the merchandise. This news has stirred quite a bit of controversy, but should bode well for Best Buy Co., Inc. (NYSE:BBY) investors.
Why the bill is important
The business of online retail has grown rapidly in the last decade (more than three-fold), as online sales now account for more than 5% of all retail sales, or $57 billion per year. For the largest of online retailers, eBay Inc (NASDAQ:EBAY) and Amazon.com, Inc. (NASDAQ:AMZN), billions in annual sales tax is saved for the consumer as the current sales tax plan is voluntary and just recently began to be implemented. This new legislation will make sales tax mandatory for online retailers, providing many billions in revenue to the government.
Back in February Reuters reported that an amended version of the sales tax bill would be sent to President Obama in 2013 and that a vote could occur towards the end of the year. However, this is one bill that politicians have acted on fairly quickly, as the Senate has already voted in favor 75-24 of a non-binding resolution that backs the idea. So far Amazon.com, Inc. (NASDAQ:AMZN) has been in favor of the changes, while eBay Inc (NASDAQ:EBAY) opposes, believing that it will add additional burdens to small businesses.
The effect of the new bill was not initially expected to cause any impact until late this year or maybe early 2014. However, the Senate is now prepared to vote this week to determine whether or not states can force Internet retailers to collect sales tax. Amazon may appear in favor of this bill, however eBay’s take is most likely shared by all large online retailers, as it could cause a fundamental backlash.
A bill that levels the playing field for Best Buy Co., Inc. (NYSE:BBY)
This is a bill that will force additional changes on behalf of Amazon.com, Inc. (NASDAQ:AMZN) and eBay Inc (NASDAQ:EBAY). Aside from more thorough documentation, both will need new systems and cooperation with local states to abide to individual tax laws. Then, there is the issue of city and county taxes and whether or not states will demand these taxes as well. With the government losing billions in annual revenue these requirements are all but certain changes, the question is how will large internet retail companies adapt?
A 6% sales tax may sound petty, but when you think of large and expensive technology products it can be a determining factor to whether or not consumers shop online or in stores. If it’s a $400 tablet, then $24 in additional taxes may push consumers from companies such as Best Buy Co., Inc. (NYSE:BBY) to online retailers such as eBay. The fact that eBay Inc (NASDAQ:EBAY), Amazon, and others alike will most likely lose their competitive edge in pricing, could very well create a shift back towards physical stores as the preferred shopping method.
Recent data shows an overwhelming statistic: More than 20% of all consumers who purchase an electronics product from Amazon first viewed and or tested the same product in store. This practice is also known as “window-shopping” and in the past has made sense with consumers able to save 5-10% (tax) and another 1-3% on merchandise pricing alone. However, now that online stores will only have the 1-3% pricing advantage, consumers may find the advantage to purchase in store favorable to the wait of shipping and the unknown of online shopping.
Based on my research, I believe this new bill will add significant sales to companies such as Best Buy Co., Inc. (NYSE:BBY), possibly half of those who “window shop” at its stores before buying on Amazon.com, Inc. (NASDAQ:AMZN). This is taken from another statistic, one that says 10.86% of all consumers cross-shop Amazon with Best Buy. Thus if 20% of consumers are “window shopping” and 10.86% compare prices then my belief is that up to 50% of those comparing prices will find Best Buy and its “take-home now” product approach favorable to the 1-3% that they “could” save on Amazon. In terms of revenue and fundamentals, this bill could create significant top-line gains for Best Buy Co., Inc. (NYSE:BBY) over the next few years. When you combine this fact with a stock that is already trading at just 0.16 times sales, then there’s reason to believe that big gains are brewing for this retail stock.
The article Thanks to Government, Big Gains Are Brewing for This Retail Stock! originally appeared on Fool.com.
Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.