The Wall Street Journal posts a very interesting blog item about how Amazon is showing signs that it’s losing its most important competitive advantage: lower prices. Alas, it oversells what it’s got.
After years of successfully avoiding having to collect sales taxes drawing to a close—far too late—Amazon is losing the unfair price advantage it’s had over bricks and mortar retailers for nearly two decades.
Already we’ve seen some signs that Amazon’s competitors are getting at least a slight boost in states that have forced it to collect sales taxes and more are coming:
Most importantly, Amazon is gradually losing a price advantage it long enjoyed by not charging state sales taxes. While the company has done deals with a number of state governments to start collecting the taxes — including major markets like California, Texas, New Jersey and Florida — in states where it still does not collect sales tax it enjoys a 5%-10% “pricing advantage,” BB&T wrote.
But the Journal finds one research report that says Amazon is also losing its pre-tax price dominance via fierce competition from physical stores:
Prices at Bed Bath & Beyond were on average 6.5% less than at Amazon for a basket of 30 items chosen by analysts at BB&T for one of their periodic pricing studies comparing the retailers. “We are becoming increasingly concerned Bed Bath & Beyond is sacrificing gross margin in order to drive top-line growth,” BB&T said — that is, increasingly concerned that Bed Bath & Beyond is starting to behave more like Amazon…
Some, like Best Buy, have introduced price match guarantees promising customers to meet any Amazon price for items in their stores…
The BB&T study is interesting, yes. But it in no way justifies a headline that says “Problem for Bezos: Mall Becoming Cheaper Than Amazon.”
That headline is just not true. While Bed, Bath, and Beyond may be (and I’m skeptical) cheaper on a select basket of items than Amazon, it seems more likely that they’re an outlier.
The WSJ has hit on a good story idea here, but relegates it to a skimpy blog post with a sexed-up headline it doesn’t back up. How do other retailers’ prices compare to Amazon’s? How is Bed Bath & Beyond able to make money when it has much higher overhead than Amazon, which itself doesn’t really make money? If BBB is an outlier, why? And what’s their strategy?
Any answer has much to do with Bed Bath & Beyond’s net profit margins, which at 9.5 percent are very high for a retailer. Walmart’s, for instance, are just 3.6 percent and Home Depot’s are 6 percent.
Those high margins in and of themselves are probably worth a story. How has Bed Bath managed to garner that kind of margin in the viciously competitive big box world? How successful has Best Buy’s price match guarantee been?
Here’s hoping the Journal circles back on this for a more in-depth piece.
Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR’s business section. If you see notable business journalism, give him a heads-up at rc2538@columbia.edu. Follow him on Twitter at @ryanchittum.