(By Mani) Consumer electronics retailer Best Buy, Inc. (NYSE: BBY) has taken a significant step against online rivals such as Amazon.com, Inc. (NASDAQ: AMZN) as it reportedly plans to match online prices of competitors to boost sales in the much-important holiday season.
The company is also preparing to offer free home delivery on merchandise that is out of stock in stores, WSJ reported citing a person familiar with the matter.
Best Buy's move is a first step in improving customer service, but it still has an uphill battle to climb if it wants to compete effectively with online retailers.
iStock feels that the latest weapon from the Best Buy could do only a little in shielding it from the clutches of Amazon as people are used to Amazon's customer service and timely shipping.
Best Buy doesn't have many options either as it is in a do or die situation. Either it needs to compete against giants like Wal-Mart, Inc. (NYSE: WMT), which is planning to test same-day delivery to customers, and online retailers or quit the race.
The Minnesota-based retailer may want to make the most of the holiday shopping season, when retailers fetch at least 40 percent of their annual sales. In addition, a weak economy is curbing the consumer spending and forcing them to look for cheaper alternatives.
However, Best Buy's move could work when the retailer is able to post good volumes. Otherwise, lower prices may eat in to the margins that in turn may hurt profits of the company, which again may make investors uneasy.
Interestingly, all these developments come at a time when Best Buy is in the midst of a takeover offer from founder Richard Schulze and the departure of finance chief James Muehlbauer.
The company is contending with significant structural limitations in its business model. Its comparable store sales, a key metric for retailer performance, have been on the downtrend for seven straight quarters.
Best Buy bore the brunt from the ongoing change in the shopping habits as consumers are avoiding big box stores and are turning online for best deals. They just use big box stores such as Best Buy as a reference point and then buy their goods at a cheaper rate from online shopping sites such as Amazon and eBay, Inc. (NASDAQ: EBAY).
In addition, many of the sought after consumer gadgets like iPhones and iPads are being offered online by their manufacturers itself thereby removing Best Buy from the equation. So, Best Buy is indirectly acting as a sales driver for these online retailers.
No wonder, the company's stock fell 22 percent in the last one year and dropped 62 percent in the past five years.
Moreover, Best Buy is trying desperately to avoid the fate of former rival Circuit City which liquidated its business in 2009 and plans to close 50 U.S. big box stores in fiscal 2013, cut about 400 jobs, changes to the store and operating models.