Is Best Buy Brilliant or Stupid?
Oct 12th 2012 6:00PM
Updated Oct 12th 2012 6:14PM
Best Buy (NYS: BBY) is taking a gamble this holiday season.
The struggling consumer electronics giant is going to give customers the ability to match deals that they see on Amazon.com (NAS: AMZN) .
The objective, naturally, is to nip the grim showrooming trend in the bud. The number of folks using Best Buy's stores to kick the tires of big-ticket electronics before buying them for less online is growing. Best Buy thinks that the showrooming traffic is material enough -- somewhere in the mid-teens of the percentage of overall store visitors -- that it wants to convert them while they're still in the stores.
Best Buy and other retailers have offered price-matching for ages, but the policies typically only refund the difference of the same product if it's on sale for less at a bricks-and-mortar rival.
"Best Buy will match the price if you find a lower price on an identical available product at a local retail competitor's store, a local Best Buy retail store or BestBuy.com," reads the retailer's current guarantee. That will change ahead of the start next month of the holiday shopping season.
Best Buy has yet to indicate exactly how the process will work or if some items or product categories will be excluded from the policy.
Another interesting wrinkle is that Best Buy will offer free delivery of any item that is currently out of stock.
The wider pricing guarantees and free deliveries will clearly improve in-store conversions and increase customer satisfaction. The real question here is whether Best Buy can afford these margin-munching moves.
There's a reason Amazon can sell most items for less than your local Best Buy. Without a network of costly stores to maintain, Amazon simply lives off its cheaper fulfillment centers. Will Best Buy be able to turn a profit on most of these price matches?
Then we get to the stickier problem of how the new policy may force traditional customers into being more Web-conscious. After all, it's one thing to know that everyone sitting on the same plane is paying a different price for the flight. It's another thing entirely to know what you're leaving on the table in paying $800 for a TV where a quick mobile trek to Amazon.com could shave $125 off right away.
Retailers are taking different strategies in tackling the showrooming trend. Wal-Mart (NYS: WMT) is trying to woo folks at home by testing same-day delivery of online orders in a few markets this holiday season. Cheap-chic retailer Target (NYS: TGT) has gone with offering exclusive merchandise that shoppers can't find anywhere else.
Best Buy's approach is noble. It will help boost sales -- and that's important -- but it may very well implode margins.
Obviously Best Buy has to do something, but it remains to be seen if matching the prices of cost-advantaged competitors is a brilliant solution or a ticket to an earlier grave.
Best Buy is not a good buy
I entered a bearish CAPScall on Best Buy in Motley Fool CAPS last year. The call is beating the market so far -- because Best Buy is not. It's a gutsy call now, but I'll stick with it on paper. I wouldn't short Best Buy with real money.
The article Is Best Buy Brilliant or Stupid? originally appeared on Fool.com.Longtime Fool contributor Rick Aristotle Munarriz has no positions in the stocks mentioned above. The Motley Fool owns shares of Amazon.com and Best Buy. Motley Fool newsletter services recommend Amazon.com. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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