Apple Watch Will Make Things Better For Best Buy, As It Catches Up With Amazon
There was a time when people feared that Best Buy (NYSE:BBY), which had long been a go-to place for electronics, would go down in flames as Amazon (NASDAQ:AMZN) rose to power. Unlike its brick-and-mortar peers including RadioShack, Circuit City and Tweeter, etc., which went out of business, Best Buy has managed to fight its way back slowly, but steadily.
Amazon might have been better than its competitors in many ways, but it boils down to two key factors: convenience and price. The online model gave customers the ability to browse through products sitting at home. More importantly, the same model also allowed Amazon to offer products at competitive prices and rapidly capture market share. However, Best Buy came up with a turnaround plan named Renew Blue, through which it set up its own online operations and promised customers that it would match competitors on price. In a recent study, which we will discuss later in this article, it was found that the price gap has almost closed now.
Essentially, Best Buy established a robust on-line presence to better complement the merchandise it offers in its physical stores. For a more detailed analysis of the company’s transformation, read our recent article here.
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While Best Buy continues to work on reducing the costs that come with stores, the benefits seem to be increasing more than ever before. The emergence of wearable technology has created an increasing need for hands-on experience with products. This growing segment present a huge opportunity for Best Buy, especially because it’s a category where they have an advantage over online rivals. Below, in this article, we will also discuss how the recent announcement that Best Buy will be the first non-Apple store to offer the Apple Watch. [1]
Products Are Selling At Almost The Same Price At Both Best Buy And Amazon
Despite Best Buy providing customers with a price match guarantee, the general perception that Amazon offers better prices than electronics stores, like Best Buy, seems to persist. Finally, to Best Buy’s relief, there’s a study proving that the price gap is virtually non-existent.
SunTrust Robinson Humphrey, a corporate and investment bank, has been keeping a watch on prices of products sold by both Amazon and Best Buy. As part of a study [2], they tracked the prices of a basket of items including washers and dryers, TVs, computers, etc. While the price gap was seen to be narrowing over the past two years, they reportedly converged to nothing. The company’s MD, David Magee, says, “We’ve been doing these checks for the past couple of years, and we’ve seen a decreasing gap between the two firms. This is the first time we’ve seen pricing parity throughout the store.”
Its also important to note that Best Buy has been closing down the service gap, i.e., on shipping and convenience. Compared to Amazon, which offers free shipping to customers who pay $99 a year, Best Buy offers free shipping on all purchases of $35 or more. Moreover, Best Buy has also been testing curbside pickup [3] and offers a same day pick-up option for online purchases.
The First Non-Apple Store To Sell Apple Watch
As the market for wearable devices expands, Best Buy is making the right moves to make the most of the opportunity. Starting August, Apple Watch was officially made available at Best Buy stores, the first non-Apple store to officially sell the product. The company announced that Apple Watch would be available in 100 stores initially and would be rolled out to 300 stores by the end of this year.
It is estimated that around 2.3 million Watch units were shipped in the second quarter of 2015, according to BMO capital markets. The firm also expects 2016 shipments to amount to 27 million, approximately 7 percent of the iPhone installed base. While Apple did not provide specific revenue figures for the Watch, analysts have attempted to calculate the number based on the “other” category which Apple Watch falls under, in Apple‘s (NYSE:AAPL) financial statements.
In the third quarter of 2015, other product revenues were $2.6 billion compared to $1.7 billion in the prior quarter. Since the segment has been on a year-on-year decline (by $200 million) until the Apple Watch launch, assuming a similar decrease this quarter, Watch revenue was estimated at approximately $1 billion by Juniper Research [4]. Given that slowing tablet sales have been a drag on the company’s revenues for a while now, Apple Watch will provide the much needed boost to Best Buy’s top line.
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