A normal nightmare might involve a razor-gloved Freddy Krueger chasing you into a corner as his smile stretches his disfigured face and his decades-old red-and-green striped sweater reeks of sweat and blood. All the while, your mother-in-law's face appears upside down, her eyes peering into yours as she laughs hysterically at your future demise.
That might sound a bit horrifying, but even if you experienced this nightmare you would know in the back of your mind that it was just a dream. While shopping nightmares might not sound as terrifying on the surface, they're much scarier because they're real. When the holidays roll around, they turn from real to surreal. This is not a place where you want to be, which is why Best Buy has come up with a strategy to combat holiday shopping nightmares.
Will Arnett tells bedtime stories
With Will Arnett's name in the title and the above subtitle, we should cover who he is prior to moving on. Sorry, Will, but you're not Will Smith. Will Arnett is a Canadian actor who is best known for his roles on television shows Arrested Development (FOX), 30 Rock (NBC), and Up All Night. He has also appeared in several movies and played the voice of several characters in animated movies.
With that track record, can Will Arnett influence more people to visit Best Buy? (NYSE:BBY) Decide for yourself: http://www.youtube.com/watch?v=sRGW1HEg7FU&feature=share&list=UU5pK3w6QEq1bUMmU2Hs43Pw
The message is that Best Buy eliminates shopping nightmares by offering convenience (store/online/in-store pick-up), value (Low Price Guarantee), and broad product selection (all new technology devices found under one roof). Let's break this down.
Offering store, online, and in-store pickup plays into the "shop from anywhere at any time" trend being seen throughout the retail industry. Online is the biggest growth area, so let's see how Best Buy is doing there.
According to Alexa.com, BestBuy.com ranks No. 49 in the United States (for most visited websites), and it's up 32 spots to No. 336 globally over the past three months. Also, over the past three months Pageviews-per-user is down 4.43% to 5.82, time-on-site is down 11% to 4.17, and bounce rate (number of people who view one page and leave – the lower the number, the better) is up 12% to 29.70.
Comparatively, Amazon.com (NASDAQ:AMZN) ranks No. 5 in the United States, and it's down five spots to No. 11 globally over the past three months. Pageviews-per-user is up 70.50% to 9.82, time-on-site is up 56% to 8:19, and bounce rate is down 37% to 29.20. Those are phenomenal numbers.
If you're looking for a comparison with a company that primarily operates in the physical world, then let's use Wal-Mart (NYSE:WMT), which ranks No. 44 in the United States, and it's down 31 spots to rank No. 200 globally over the past three months. Pageviews-per-user is down 10.49% to 5.89, time-on-site is down 19% to 5:03, and bounce rate is up 19% to 32.60.
While Best Buy, Amazon, and Wal-Mart all show strong online stats, Amazon demonstrates the most impressive online growth. These trends don't guarantee anything, but online traffic trends can indicate future online sales.
Best Buy's Low Price Guarantee seems to be a wise move because it minimizes showrooming. However, by offering its Low Price Guarantee, Best Buy must now attract more customers to offset the loss in revenue due to pricing pressure. The aforementioned commercials, the offering of Shine activity trackers by Misfit, and the option to pre-order the Xbox One -- Day One Edition are some recent initiatives.
A separate section for broad product selection isn't necessary. Almost anything found at Best Buy can be found elsewhere.
Amazon has been the most impressive on the top line over the past five years:
The bottom line is a different story. Looking at a more recent results, Best Buy delivered diluted earnings per share of ($3.36) in fiscal year 2012 and ($0.73) in FY 2013. The loss narrowed, but it's still south of the border.
Amazon delivered diluted EPS of $1.37 in FY 2012, but then reverted to ($0.09) in FY 2013.
Wal-Mart, on the other hand, delivered diluted EPS of $4.52 in FY 2012 and $5.02 in FY 2013. Therefore, Wal-Mart is likely to remain the most reliable of the three when it comes to returning capital to shareholders. Wal-Mart currently yields 2.50%, whereas Best Buy yields 1.60%. Amazon doesn't offer any yield.
With Amazon stronger on the top line and Wal-Mart stronger on the bottom line, it seems illogical to opt for Best Buy as an investment. One argument in Best Buy's favor is that it offers a more attractive valuation of 16 times forward earnings versus 129 times forward earnings for Amazon. Wal-Mart is trading at 13 times forward earnings.
The bottom line
The bullish argument for Best Buy is that it will be the only physical retailer that offers all new technological devices under one roof in the physical world, while the company grows online.
The bearish argument is that Wal-Mart can easily build out to offer similar products at similar prices (with more marketing power) while Best Buy doesn't stand a chance of competing with Amazon online.
Best Buy has proven naysayers (like myself) wrong so far this year, with the stock appreciating 267% year to date. I don't own positions in any of these stocks, but if I wanted growth, I would go with Amazon. If I wanted safe dividend payments, I would go with Wal-Mart.
Dan Moskowitz has no position in any stocks mentioned. The Motley Fool recommends Amazon.com. The Motley Fool owns shares of Amazon.com. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.