Joly avoided using the word Amazon altogether, but he was clearly talking about the e-commerce titan. He said that combined Best Buy and the e-retailer dominate less than 20% of the electronics retail market and "both are getting market share."
That leaves 75% of the total market share for "these two competitors [Best Buy and Amazon]" to grab, added Joly.
I’ve been hearing about the demise of Best Buy for nigh going on 20 years now. Back in the 90’s, the tech press was enamored with the direct-to-consumer models of Dell and Gateway Computers. These low-cost and scrappy upstarts were going to blow the bloated retail stores like Best Buy into the weeds. Or at least that’s how the story always goes. Until it doesn’t.
So, forgive me for being a little skeptical about the whole “Amazon is going to conquer retail” meme. Amazon is perfecting the direct-to-consumer model beyond what anyone else has done. But the paradigm isn’t anything new. Amazon is a glorified catalog retailer that carries on what Sears & Roebuck started in the 1800’s.
I’m not trying to take away from Amazon’s success. What they’ve done thus far is amazing. They’ve expanded catalog sales far beyond what anyone even ten years ago thought possible. But this model has its limits. That’s why they are now buying bricks-and-mortar stores and exploring partnerships with current retailers. Why? Because a distribution footprint is astronomically expensive.
I’ll never forget how shocked everyone was at Gateway when it was announced that we were going to build stock and sell our PCs through Best Buy. That’s when everyone knew how bad Gateway’s situation really was. Those of us with access to the financials knew, but once upper management decided to commit the mortal sin of building computers to place on store shelves, everyone knew. For years, we’d all heard from our founder Ted Waitt how building inventory was an evil tantamount to communism. The Gateway faithful thought that their direct-sales model was the way of the future.
But Ted Waitt ran into the buzz saw of the two universal laws of retail. One, price is the biggest driver of elasticity. And two, people hate to wait for their merchandise. We had price covered. Our direct-to-consumer model allowed us to offer low prices. But we found that people didn’t want to wait.
Amazon’s success is due to enhancing efficiencies and minimizing the wait. But that will only get them so far before they need to greatly expand their distribution footprint. Amazon is getting to the point where every hour in reduced wait time will require an exponential investment. I’ve played with the math on distribution footprints for both Gateway Computers and Cabela’s Inc., so I know how expensive it can get.
I don’t think Best Buy is going anywhere soon. As long as there are people with more money than brains, there will always be a place for bricks-and-mortar stores like Best Buy. There is a whole segment of consumers who are willing to pay more for instant gratification and entertainment. And going to Best Buy for a tech nerd like me is quite entertaining. I love strolling through the aisles of shiny new gadgets and accessories, the way a book lover enjoys going to a real book store and leafing through the pages of real books.
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