With everything you hear and read about Amazon.com (NASDAQ:AMZN) in regards to customer service, it seems almost unfathomable that another retailer delivered its products faster during the holiday shopping season. However, according to StellaService -- an independent provider of customer service ratings for online retailers -- Best Buy (NYSE:BBY) offered faster delivery speeds for the October-November-December time period. There's a simple reason why.
During the holiday shopping season, Amazon had an average delivery time of four days. That's pretty good, but not good enough to top Best Buy, which had an average shipping time of three days.
The reason for Best Buy's improved shipping speed is that it used 400 of its retail locations to ship-from-store. This allows for shorter delivery distances for most products. Best Buy CEO Hubert Joly said: "With the rollout of ship-from-store, we are now looking at our stores strategically in relation to our longer-term supply chain strategy. We strive to deliver inventory to our customers when and where they want to receive it."
Best Buy customers seem to be pleased with Best Buy's improved shipping speeds and with Best Buy overall, which is evidenced by a Net Promoter Score (rates customer service/loyalty) increase of 400 basis points year over year, while the industry suffered a 200 basis point decline. Additionally, online comps jumped 23.5% year over year for the holiday shopping season. This is all good news so far, but you should never count out Amazon when it comes innovation and competitive advantages. Amazon has a desire to build distribution warehouses all over the country. Therefore, this might just be a temporary advantage for Best Buy. Furthermore, while Best Buy is improving its delivery speeds and satisfying its customers, it still must still contend with many headwinds.
Best Buy reported seeing domestic market share gains for the holiday shopping season, but domestic comps still declined 0.9%. Best Buy cited a highly promotional environment as the key culprit. Looking at the bigger picture, for the nine weeks ended Jan. 4, 2014, overall comps slipped 0.8%. One minor bright spot on the comps front was a 0.1% increase internationally.
In addition to a highly promotional environment, Best Buy is dealing with supply chain constraints for key products, significant year-over-year store traffic declines (between Black Friday and Christmas), and a disappointing mobile phone market. Furthermore, its Advance Renew Blue transformation led to higher than expected costs.
There's no sense crying about the past, though. Best Buy has a plan for the future. The question is: will it be an effective plan?
By 2015, Best Buy aims to lower its cost structure, grow its online presence, improve its multi-channel experience for customers, personalize marketing while also focusing more on special occasions as gift-buying opportunities, and rejuvenate its Geek Squad brand.
In regards to cost structure, something must be done. Best Buy currently sports a profit margin of negative 0.84%. While Amazon's profit margin of 0.37% isn't seen as impressive, at least it's north of the border. There are no specific details on how Best Buy will improve its cost structure, but lowering costs is easier than improving comps performance. The real question is whether or not Best Buy can improve its comps. It's difficult to see how.
As far as online performance goes, Best Buy has been improving. Amazon.com is well ahead of both Best Buy and Wal-Mart Stores (NYSE:WMT), or BestBuy.com and Walmart.com. It's really more important for Best Buy to stay ahead of Wal-Mart online. Catching Amazon wouldn't be realistic.
At the moment, according to Alexa.com, BestBuy.com has a global traffic ranking of 198 and a domestic traffic ranking of 79. This isn't far behind Walmart.com, which has a global traffic ranking of 140 and a domestic traffic ranking of 48.
Over the past three months, BestBuy.com has seen pageviews-per-user increase 3.40% to 6.0 and time-on-site increase 12% to 4:47. Over the same time frame, Walmart.com has seen pageviews-per-user and time-on-site improve 12.90% to 6.66 and 15% to 5:48, respectively. These numbers look strong for both companies because of the holiday shopping season. What stands out is that Walmart.com has performed slightly better than BestBuy.com.
These numbers show that BestBuy isn't just competing with Amazon, but Wal-Mart as well. And we could add many more retailers to that list. Wal-Mart has much deeper pockets than Best Buy, which should give it an online edge over the long haul.
As far as marketing plans go, effectiveness can't be predicted without detailed information. In regards to Geek Squad, it's perceived as expensive, and many consumers opt to figure out solutions on their own by doing online research, sometimes using do-it-yourself videos on YouTube.
The Foolish bottom line
Best Buy is now delivering products faster than Amazon, and its retail locations give it a clear advantage in this sense over the near term. This is one reason why Best Buy is capable of a turnaround. However, Amazon will certainly fight back, and Best Buy is still facing substantial headwinds.
At this stage, it's also very difficult to tell what direction Best Buy will go from a strategy standpoint, and what it will look like three to five years from now. Until the company delivers consistent profits and there is more clarity, you might want to avoid it as a potential investment option -- unless you don't mind high risk. Please do your own research prior to making any investment decisions.