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Why Amazon is becoming the real best buy

Like all red-blooded American consumers, I receive 5-7 packages a week from Amazon.

Wait, what? You don’t?

OK, I admit I have an Amazon addiction. But I can stop anytime, I swear. See, for $80 a year with Amazon’s Prime service, I get free 2-day shipping and pay no sales tax on most orders. Prime also gives you free access to Amazon’s video streaming content, but the selection is lame so that’s not really a consideration.

Best Buy

Amazon's Showroom: Best Buy.

Amazon warehouse

One of Amazon's warehouses: where the real magic happens.

What’s happening in retail is interesting, and it’s making the national big box stores sweat bullets. Physical stores, which spend millions in bricks and mortar, inventory, staff, and advertising, have essentially become Amazon’s showroom.

Best Buy’s impending death has been frequently documented. Target, Bed Bath and Beyond, and Kohl’s are also feeling the pinch. After all, who doesn’t like going to squeeze the Charmin in person, scanning the bar code with the Amazon iPhone app, and then buying it for an average of 11% less with one click?

So what can stores do to combat this momentum?

1) Beat Amazon on price. This one is difficult. Since most of these stores deal largely in commodities, profit margins are already razor-thin. Some retailers are experimenting with in-store discounts by using their special financing deals. Target, for example, gives you 5% off for using their Red card, which is simply a debit card tied to your bank account.

2) Provide other services that can’t be matched online. It’s still more convenient to get your computer serviced at a local store than shipping it to some unknown location. And stores that combine experiences such as eating and shopping (Ikea, Costco), or groceries and electronics (Super Target), for example, make it more tempting to shop locally. Moreover, immediacy is still an advantage. Two-day shipping is not same day delivery. When you gotta have it now, nothing online will do.

3) Create exclusive products. The box stores could develop strategic product lines that are unique to their stores. While this may work for some consumers who care most about features, many are more motivated by price and are likely to forgo the latest product features in lieu of a cheaper overall price tag.

That’s about the best advice I’ve got for the big box retailers. Not an easy proposition, obviously. But it is an interesting study in modern capitalism. What do you think? Are there other things retail stores can do to survive? Or are you already an Amazon addict like me?

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Posted by on February 14, 2012 in Business, Random, Thoughts

 

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