Taking it to Amazon
Online retailer Amazon.com, Inc. (NASDAQ:AMZN) had one big advantages over Best Buy in the past: until recently Amazon.com, Inc. (NASDAQ:AMZN) didn’t charge sales tax on purchases. This created a significant price advantage that Best Buy could not possibly overcome. However, Amazon.com, Inc. (NASDAQ:AMZN) now charges sales tax in ten states, including California, New York, and Texas, leveling the playing field in these large markets. This has allowed Best Buy to implement a price-matching policy that actually matches the after-tax price.
Showrooming was a big buzz word last year, but Best Buy Co., Inc. (NYSE:BBY) has been able to reduce the effects of the practice with this policy. One thing working to Best Buy’s advantage is that consumers like to hold gadgets like tablets and phones in their hands before purchasing, something that Amazon cannot facilitate. And with prices essentially the same, there is no real incentive to showroom any more.
Another advantage for Best Buy is its order online, ship to store program. This allows customers to pick up merchandise ordered online at their closest Best Buy location. If the item is already at the store then it can be picked up on the same day, trumping Amazon.com, Inc. (NASDAQ:AMZN)’s 2-day shipping time.
There have long been rumors that Amazon.com, Inc. (NASDAQ:AMZN) is preparing a same-day delivery system that would allow customers to receive items on the same day that they place the order. Logistically this is a huge challenge, but if Amazon can pull it off it takes away a key advantage of brick-and-mortar retail. Amazon is investing heavily in new distribution centers and working to make them more efficient, and I suspect that at some point in the future same-day delivery will be offered. The costs associated with a nationwide same-day delivery system will almost certainly be staggering, keeping Amazon.com, Inc. (NASDAQ:AMZN)’s profits in check, and eventually investors will stop giving the company a pass. But as the stock has proven thus far, eventually can be a long time.
The bottom line
Best Buy Co., Inc. (NYSE:BBY) is making steady progress toward creating a leaner company, as Joly has managed to stabilize the business and increase online sales considerably. The company still has over $300 million in annual costs left to cut, and we should see incremental progress next quarter. The Samsung and Microsoft mini-stores will be completed before the holiday season, so the disruptions during the second quarter won’t be repeated for that crucial period. The Renew Blue strategy is on track, and Best Buy is in great shape.
The article The Epic Turnaround at this Retailer Continues originally appeared on Fool.com and is written by Timothy Green.
Timothy Green owns shares of Best Buy. The Motley Fool recommends Amazon.com. The Motley Fool owns shares of Amazon.com.
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