I know much has been made across the marketsphere and blogosphere about BBY's shortcomings and AMZN's triumph but its all hype. Both BBY's demise and AMZN's triumph are HYPE.
For every regurgitated story of merchandising at BBY that gets over reported there are two stories of counterfeit merchandise on AMZN that go under reported. A recent poll by the University of Chicago showed over 80% of people where very uncomfortable buying items over $150 on AMZN because of counterfeit, shipping damage concerns. In terms of online buying BBY received the highest marks for electronics costing $150 behind AAPL.
AMZN is not profitable. The business model doesn't work. Guys, there is a very real possibility that AMZN could be bankrupt by 2015. They lose money perpetually and have a P/E so ridiculously high that it would make a 1999 traded tech stock blush. What happens when the online sales tax bill passes and reduces their cost advantage significantly?? Or more importantly, what happens when WLMT, TGT, BBY et al offer same day delivery??? AMZN will then be completely erased and in fact irrelevant because item returns will be a considerable hassle and there is no showroom esp for big box items. AMZN really has little future in retail and will not be a dominant part of its landscape in the future.
We are also slowly starting to see a Rockefeller Standard Oil meets railroad situation developing as well-Brick and Mortar retailers and goods manufacturers are starting to team up and strike up exclusive deals for merchandise. It benefits both the merchandise maker and brick and mortar sellers margins.
BBY is one of the only two remaining national brick and mortar electronic retailers. RadioShack will likely be out of business by 2014 and BBY already has the stores (now called Best Buy Mobile) popping up to take their complete market share when it happens. Best Buy does not need to downsize stores. In fact it's almost serendipity that BBY has the space they do as their extra space will serve as logistics support once same day delivery becomes transnational common practice. It's a boon.
Guys, retail is changing before our eyes. Same day delivery will be commonplace practice by 2014, online sales tax will be the law by 2014, merchandise exclusivity is being negotiated now more than ever and BBY is slowly diversifying albeit at the growth rate of a tortoise. I think Richard Shulze sees the future of retail clearly and that AMZN will have no place in it. Im not saying there will be a buyout and while it is possible I dont think
its necessary imho. Sure BBY has had a few bad quarters just like every retailer but that will change. Before that and in the short term, even a small bump in the improvement of the economy and BBY's cost cutting measures should easy get them back to profitability. In the mean time buy some shares at 52 week and historical lows and enjoy a whopping 6% dividend which contrary to media silliness BBY will have no problem paying going forward.
Disclosure- long 6000 shares @ $12.01
Sentiment: Strong Buy