Best Buy’s Best Bet

Much of the news surrounding Best Buy has been hardly positive this year.  The big-box electronics retailer recently announced a 30% drop in quarterly profits.  Plans are also in the works to cut the square footage of Best Buy’s stores by 10%.

Analysts have suggested that Best Buy has struggled for the same reasons many other bricks-and-mortar retailers have: Amazon.  Some have gone as far to say that Best Buy is a showroom for Amazon – that Amazon shoppers visit Best Buy to touch/feel/interact with products then go home and place an order with Amazon.  Compete data suggests the news may not all be bad.

Amazon’s impact on Best Buy: It’s not all bad

Compete data indicates some interesting trends in how consumers are shopping for electronics on Best Buy and Amazon.  We took a look at the cross-shopping activity of Best Buy online shoppers to the Amazon Electronics section.  Only 3.7% of Best Buy shoppers also visited Amazon Electronics in the same session.

However, the results are quite different when you look at the cross shopping behavior of Amazon Electronics shoppers. About 10.8% of Amazon Electronics shoppers also visited Best Buy during the same session.

There does appear to be a sharp decrease YOY in the cross-shop activity in Amazon shoppers that also visit Best Buy in the same session.  This suggests that consumers may be developing a stronger affinity for Amazon vs. Best Buy.  Something else might be in play: Amazon’s success of the Kindle might be strengthening consumer perception of Amazon as top of mind when they are considering making an electronics purchase.

However, there is still some very encouraging signs for Best  Buy: shoppers who visit Best Buy, then go to the Amazon electronics section converted at a lower rate in Spring 2011.  From a consumer loyalty standpoint, this is great news for Best Buy.  It suggests that the consumers Best Buy attracts have a strong relationship with the retailer and are likely “mission-focused” – they know what they want and want to complete their order right away.  What could be driving such loyal shoppers?

Ship to store impact on Best Buy

Ship to store might be a reason why Best Buy is keeping more cross-shoppers from buying on Amazon.  4 in 10 consumers who have placed an order on Best Buy’s website have selected ship-to-store as their shipping option. 

Ship-to-store allows shoppers to purchase a product online and pick up that order at their local Best Buy store.  Consumers save on the shipping costs.

It is not inconceivable to think that Best Buy is banking on the idea that consumers will come to the store to pick up their orders and also pick up a couple of other items – complimentary or impulse – when they are in the store.

There appears to be a big opportunity for Best Buy to leverage this hugely popular trend by placing complimentary products of their most popular ship-store items near the registers or maybe even go so far as to offer consumers a percentage off discount if they spend above a certain dollar threshold during that same-day only.

Best Buy’s next bets

Best Buy has experimented with a few new ways to drive traffic and ultimately revenue – including offering consumers the option to buy products new from Best Buy and later sell them back to Best Buy for a percentage of the original purchase price.   They also launched a trade-in program that allows consumers to trade in products bought anywhere for upgrades.

Response to date appears to be quite tepid.  It is hard to draw too many conclusions from this data given that consumers may be more likely to inquire in-store about such programs given the physical transaction that needs to occur.

One area that stuck out is the uptick in interest in Best Buy’s weekly ad.  Consumers are likely feeling the pinch of the economy and are shopping for deals.  This indicates demand in Best Buy is still there – however, to bring this story full circle – more interest and purchases of discounted items means less profit.