Investors received plenty warning that the 2013 holiday season would be rough. Analysts at Morgan Stanley wrote a report titled: "Expect Coal: We Predict the Weakest Holiday Since 2008." In the report, the analysts singled out several factors that would lead to poor holiday sales, including "increased promotional activity."

Major victim
On Jan. 16, Best Buy (BBY 1.45%) announced that its domestic comparable-store sales declined by 0.9% for the period ending Jan. 4.  Management naturally blamed this on the heavy promotional activity that Morgan Stanley warned about.

Investors lucky enough to sell their shares before Jan. 16 were spared the nearly 30% tumble in Best Buy's shares. As a result of the massive drop in share price, analysts at Bank of America defended Best Buy and upgraded the shares to buy from neutral, noting that the retailer's holiday sales disappointed but that "these problems [are] short-term in nature and at current levels, Best Buy still offers opportunity."

On Jan. 28, Fool analyst Sam Mattera wrote an article entitled "The 5 Best TV Deals for the Super Bowl."  CNET reported that Best Buy will "discount a selection of items as part of its Presidents Day Sale." To most investors, it sure sounds like Best Buy's promotions are far from "short-term in nature" and are a yearly recurring cycle. Best Buy has several quarters before it needs to ramp up its promotional activity for the 2014 holiday season. The promotional activity, while short term in nature, is a long term trend that is likely to remain for years.  

Damned if you do, damned if you don't
On Jan. 6, hhgregg (HGGGQ) reported that its preliminary sales figures for the holiday quarter fell short of year-ago results. The company refused to take part in the promotional environment its peers were engaged in.

Dennis May, hhgregg's CEO, said: "While we are disappointed with these sales results, we made the strategic decision during the quarter not to fully participate in the heavily promotional environment."

hhgregg remains a profitable business with zero debt. It has showed a willingness to shift away from consumer electronics to high-margin, heavier products like appliances and fitness equipment. Management noted during its third-quarter conference call that the appliance category achieved its 10th consecutive quarter of positive comparable-store sales while the electronics category declined.

Amazon was supposed to destroy Best Buy
Best Buy announced in 2012 that it will initiate a price-matching policy, which includes matching prices offered by the online behemoth Amazon.com (AMZN 2.50%).

Regarding Best Buy's second quarter, CEO Hubert Joly said: "We started with the price match. A year ago, everybody was talking about showrooming and so forth, so we love the traffic on our site, in our stores, and we don't want to lose a customer because of price."

When Amazon reported its fourth-quarter results on Jan. 30, the company shocked the Street, delivering earnings per share that missed the consensus estimate by $0.18 and falling $470 million short of revenue expectations.. Even worse, the company projected its first-quarter earnings will be below Street expectations.

Amazon has been investing in its business for the better part of a decade. It has been argued over and over again that "showrooming," according to Wired.com, would pose a "potentially existential challenge" to retailers like Best Buy.  

When, or if, this will finally occur is still uncertain. Best Buy, despite its recent quarterly woes, is showing absolutely no signs of faltering and is embracing the challenges from Amazon, not fearing them.  Amazon, for its part, has shown thus far that it is not a retail killer.

Final takeaway
The evolution of the struggle between Best Buy and Amazon is strange. Best Buy used to be considered Amazon's showroom.  Now, due to Best Buy's price-matching guarantee, Amazon has become Best Buy's price guide. Investors would be foolish to stick around and watch these two continue to duke it out and get even more promotional overtime as both companies accept lower margins.

Even if 10 years down the road Amazon starts earning $3 per share, valuation will become a key concern for shareholders. Amazon's P/E ratio of approximately 600 easily surpasses those of other technology companies that are consistently profitable today. Apple has a P/E of around 13, while Google's P/E is near 30.

For investors that absolutely require exposure to a retailer, hhgregg is a logical choice because it is "Amazon-proof" for the time being and is trying to position itself away from the highly competitive consumer-electronics market. Unless there is a radical shift in the market, consumers are unlikely to be buying furniture, mattresses, and fitness equipment online.