By James DeRuvo (doddleNEWS)
When it comes to competing with eCommerce sites like Amazon.com, watching the long, slow death of the brick and mortar electronics store has been like listening to a scratched LP. It happens over and over again. And when it comes to Best Buy, founder Richard Schulze would rather take a chapter from Steve Jobs bio, than stand by and watch management close one store after another. And he’s crafted a $10 billion rescue plan which may make Best Buy competitive again. But can the store chain take more losses before it gets in the black again?
Owning over 20% of Best Buy shares, puts Schulze in the unique position of being able to have his ideas heard. But it seems that Best Buy management is still committed to austerity measures which would close about 50 stores, shrink the size of surviving stores and cut labor force all in an attempt to reduce operating expenses by $800 million by 2015.
Schulz, by contrast, wants to take Best Buy back in a private $10 Billion buy back and then convert Best Buy into a low price version of the Apple Store, which slashes prices and focuses on customer service. The down side of that, is that Best Buy would have to have a serious amount of operating capital (called “runway”) to absorb such losses while the company regains market share that it has lost to internet based competitors like Amazon. Also, Apple’s appeal isn’t so much customer service, as it is the cultural chic of owning “cool.”
And even though he has a sizable fortune, Schulze would also have to put together investors to engage in the hostile takeover of the company and that’s where Minnesota law may run out the clock. According to the Wall Street Journal, there’s an investor law in the Land of 10,000 Lakes that would require investors to wait 4 years before they would be able to qualify to buy a company they’ve invested in. Schulz, who not only founded the company but has been a long term investor, wouldn’t have that issue, but any new investor would be subject to that law. That would give existing management time to engage in the current cost cutting measures they hope will return Best Buy to profitability.
“Same-day services are satisfying both the convenient need of online shopping and immediacy factor of offline,” says Scott Wingo, chief executive officer of ChannelAdvisor, a global e-commerce software provider.
But while both sides’ plans are noble in design, can they really compete against Amazon, and even eBay, which is about to launch same day delivery for online purchases? Amazon will be offering limited same day delivery to Amazon Prime customers in 10 metro areas, including Chicago, New York, and Seattle for a $3.99 delivery charge on select eligible items. eBay’s same day delivery option, dubbed “Bring It,” is being tested in San Francisco on a by invitation basis. Invited shoppers can download an app for their iPad or iPhone, and then be able to shop from such stores as including Target, Nordstrom, and Walgreens. Choosing the “Bring it” option will engage a $5 delivery fee (but your first three purchases will be delivered for free) for same day delivery within a few hours.
All things being equal, Amazon’s same day delivery has the advantage, since they will be able to fulfill orders from a central warehouse, whereas eBay is an aggregate portal of individual and corporate sellers. But the real issue of same day delivery is that of online taxation. Amazon has had the advantage of keeping prices low because they’ve been able to enjoy not having to charge sales tax. But cash strapped state governments are starting to remove that privilege in the hopes of closing budget gaps with online levies. Amazon has been able to negotiate tax credits, though, in exchange for building more regional fulfillment centers.
And with the ability to fulfill and deliver orders on the same day, with those lower prices, it’s hard to believe that Best Buy will be able to compete and it’s only a matter of time before it follows stores like Circuit City which had to folder under the pressure from online stores. Then again, weren’t there doom and gloom prophecies for a certain Cupertino concern when their founder returned