Can Same Day Delivery Help Best Buy Boost Sales?

Last week, Best Buy (NYSE:BBY) announced its plans to significantly expand its same-day delivery service from 13 metro areas to 27, with plans to reach 40 markets by the holiday shopping season. This service will allow customers to purchase certain items online and receive them just hours later, with the help of third-party providers. In addition, the company also lowered the price for the service from $14.99 to $5.99, in order to offer further incentives to customers to use the service going forward.

Best Buy initially started the same-day service in the Bay Area in late 2015, and later expanded it in 2016. The company and other retailers such as Wal-Mart (NYSE: WMT) and Target (NYSE: TGT) are rushing to make online ordering more convenient amid stiff competition from Amazon (NASDAQ: AMZN), which already offers free same-day delivery and free one-day shipping to its Prime subscribers in more than 5,000 cities.

Best Buy vs. Amazon

Over the next few years, the consumer electronics market in the U.S. is forecast to grow at just 0.5-1.0% through 2022. This means that with limited growth in the total market, retailers will be primarily fighting for existing market share. Best Buy is still the largest electronics retailer by sales in the U.S., with an estimated 21% market share. However, the company has lost share in recent years to online retailers – particularly Amazon. Best Buy’s share in the consumer electronics market has fallen from over 25% in 2010 to an estimated 21% by 2016, while Amazon’s share has expanded from around 8% to around 20% by 2016.

Meanwhile, Best Buy’s total sales have roughly stagnated at around $35 billion over the last few years. In the same period, its share of online sales has increased consistently from 8.5% in 2013 to over 13% in 2016, representing a compound annual growth rate of more than 13%. In Q2 2017, the company’s online sales were more than $1 billion in a non-holiday quarter and were 13.2% of domestic revenue, up from 10.6% last year. Comparatively, Amazon’s electronics and general merchandise segment revenues have grown at a CAGR of over 30% between 2013 and 2016, with the electronics segment contributing significantly, as the number of U.S. households that own an Amazon Echo device more than doubled from 2015.

Also, Amazon recently ventured into the home appliance services space, where it hired a team of technology experts to offer Alexa consultation, product implementation and pairing with smart home devices. Amazon has also been beefing up its services segment to other experts for services such as home improvement, setting up home theaters, house cleaning, and furniture assembly. This could take away a key advantage Best Buy had over Amazon when it comes to electronics.

Geek Squad Competition

However, Best Buy already boasts of a first mover advantage in the services segment, with around 20,000 Geek Squad agents who install various consumer electronics products and integrate them with each other. The Geek Squad services also allow customers to try out products or consult with experts before buying them. This is in addition to the recently rolled out free in-home consultations across all major U.S. cities nationwide, in which professional sales consultants (with product knowledge) provide free consultations and serve as a single point of contact for all technological needs across vendors.

Given the vast number of services provided by the company, many customers are likely to be interested in purchasing specific gadgets from Best Buy rather than Amazon, especially if the product would qualify for same-day shipping. Moreover, the same-day delivery could boost Best Buy’s online sales further in the holiday season. However, if many items are not included in the list for same-day delivery, then Amazon’s ecosystem could adversely impact Best Buy’s in-store and online sales over the long run, given the massive scale of the internet retailer.

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