Long gone are the days when I would run off to Best Buy (BBY) and/or Circuit City to pick up the latest in electronics: Oh my, how the mighty has fallen!
These Brick and Mortar chains are now glorified showrooms. Plain and simple!
I mean, how can they compete with the 800 pound electronic gorilla, which is, who else, but Bezos’s Amazon.com (AMZN)? Quite simply… they can’t.
Here’s why:
1). Location! Location! Location! Best Buy (BBY) has over 4,100 stores worldwide in multiple formats. That’s great, right? Actually, it’s a very bad number in terms of rent and other costs in maintaining a brick and mortar, but we’ll get into that later. On the other hand;Amazon.com (AMZN) has a platform that easily reaches hundreds of millions of people. The cost to maintain a brick and mortar is pretty expensive, times over 1,800. Amazon.com (AMZN) has close to 40 warehouses. You do the math.
2). Physical vs. Digital: When you’re running a brick and mortar store your costs far exceed your digital counterparts. I.e. Rent, store maintenance, security, utilities, etc. And you better believe that the consumer is going to feel the blunt of those costs in markups. When you’re running an e-tailer your biggest cost next to shipping is online security, and even for acompany like Amazon.com (AMZN) that’s not a huge cost.
3). Convenience: I can leave the comfort of my home and head to a Best Buy (BBY) a coupleblocks away or I can pull up my Amazon.com (AMZN) app on my mobile device and start shopping and expect to receive my item(s) in two business days with Amazon Prime. Ah, life is good! Wait! What about the Best Buy (BBY) app? Easy! Which e-commerce platform do most people trust more? Simple! Check out the app download ratio between the twocompanies on both apple and android. Amazon.com is the undisputed champ of e-commerce (ask Wal-Mart (WMT)) so Best Buy would not survive with an e-commerce only platform, unless they go niche.
4). Customer Service: This is where Best Buy (BBY) has a fighting chance. When most beginners (and/or people who are not tech savvy) are buying electronics, they need a more “personal” guidance and you can’t get that via a phone call or I.M chat. Score one for Best Buy (BBY).
Wait a minute! Would Amazon.com (AMZN) ever buy Best Buy (BBY)? Why? What’s the point? Apart from Geek Squad, Pacific Sales, Carphone Warehouse, and other forgettable brands, Best Buy doesn’t have anything “exclusive” that would make them a worthy acquisition for Amazon.com.
Final thoughts: The showrooms of tomorrow cannot survive in their current form. They’re analog clocks in a digital age. (I know. I love my metaphors too.) Back in the day the retailer with the most brick and mortar stores was king. Now, the king is the e-tailer with the most daily unique visitors. And guess what? Amazon.com (AMZN) is currently wearing the crown with no apparent heir in sight. What if Amazon.com (AMZN) decides to start same day delivery? I can hear the Best Buys of the world filing chapter 7 (liquidation) right now.
Basic Financial Stats (BFS): Amazon.com (AMZN) is currently trading at a P/E ratio of 181.2x (TTM); an EPS (Earnings Per Share) of $1.22 (TMM); and a Market Cap of 99.4 billion. Best Buy (BBY) is currently trading at a P/E ratio of N/M (TTM); an EPS (Earnings Per Share) of -$3.08 (TMM); and a Market Cap of 6.6 billion. Best Buy (BBY) pays a quarterly dividend of $0.16 per share.

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