Best Buy ( BBY -1.09% ) is desperate to turn itself around, terrified of joining Circuit City and CompUSA in the electronics retailing gr...
But the company can't compete in one key area: price.
A new study by Barclays analysts shows that Best Buy's online prices are 4.2% higher than Amazon's (AMZN +0.18%), on average. The analysts compared prices on a shopping cart with 100 items sold on both companies' websites and found that Best Buy's prices are higher -- before tax and shipping.
It gets worse when you add tax and shipping to the mix. Amazon doesn't charge tax at all in most states, and customers who subscribe to Amazon's Prime membership plan don't pay for shipping on many items. Amazon often offers free shipping on orders of more than $25.
Then the analysts compared each item on the sites. They found that on an average per-item basis, Best Buy products were 10.7% more expensive than Amazon's items.
Best Buy was able to beat Amazon some of the time -- on about 4% of the products in the survey -- but Amazon won on price on 54% of the other products. (The rest of the time, the prices were the same.)
Savvy electronics shoppers always stop at Amazon when considering products. They'll price-check around, and maybe they'll stop by a Best Buy store to scope out what they want to buy. But when it's time to make the purchase, not enough people are choosing Best Buy.
"The company is gradually becoming a physical showroom for online retailers," said Wedbush Securities analyst Michael Pachter, according to Cnet.
Where can Best Buy compete? In service. So it's changing the way it pays employees to focus more on customer service. That's the area where Circuit City collapsed. Employees were absent from the floor and didn't seem to care at all about helping customers.
Best Buy knows it also must compete better online, and to do that it's sacrificing some of its big-box stores. The company will close 50 stores this year and has a goal of increasing online revenue by 15%. It's going to open 100 small stores focused on mobile and niche electronics.
Where is BestBuy.com weakest? In the television and home theater category, analysts said. None of the 41 products in that category were cheaper at BestBuy.com. And that's the category in which Best Buy and Amazon overlap the most.
The analysts looked at the Optoma Home Theater DLP Projector, for example, and found it at $949 at Best Buy and $826 at Amazon.
Best Buy is trying to get more competitive on shipping. Some items on its website qualify for free shipping, and customers also have the option to pick up orders in a store. Best Buy will likely expand free shipping for some of its Reward Zone loyalty customers.
"In our view, the free shipping option on Amazon.com represents a compelling value proposition to consumers, who we believe remain very price-conscious when purchasing consumer electronics items," the analysts wrote in the report.
But on taxes, Best Buy just can't compete. Generally, a company must charge online sales taxes if it has operations in the state a customer orders from. Best Buy has stores in all 50 states, so it must charge the tax.
The analysts didn't seem too enthused about Best Buy's prospects. "We believe Best Buy will continue to be negatively impacted by the relatively low level of innovation in key categories such as TV, computers and gaming for the foreseeable future," Barclays wrote. They have a $25 price target on the stock.
Best Buy shares were down 2.3% Wednesday to $23. The stock has fallen 20% in the last year.
Here are a few other products that Barclays compared:
Logitech QuickCam Orbit AF
Best Buy: $134.99
Amazon: $91.05
Sirius XM tabletop Internet radio
Best Buy: $149.99
Amazon: $110.16
Elite Screens manual projection screen
Best Buy: $129.99
Amazon: $74.31
Sony Digital Flash voice recorder
Best Buy: $62.99
Amazon: $50.95
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