The following Guest Post is from Ware Cornell:
On March 3, 2011, Best Buy sent a letter to its suppliers. It acknowledges their economic difficulties and discusses its support for proposed federal legislation to require online merchants to pay state sales taxes in states where it does not maintain a physical presence.
The idea in addressing this letter to its domestic suppliers is apparently to enlist their support for what Best Buy terms a “fairness” issue. Against the backdrop of the entry of Borders into Chapter 11 and the losses its suppliers will take, Best Buy projects the image of a retailer undercut by unfair competition.
The unnamed villain in its letter is Amazon, which does not have to pay sales taxes in many states. Amazon, in fact, is fighting two states California and Texas over millions of dollars of sales taxes attributable to distribution centers in those states. So ignoring for now the question of whether the Congress will vote to raise taxes on consumers, why is Best Buy pushing this agenda just now?
Two years ago Best Buy was blessed with the loss of its principal national competitor, Circuit City. Rather than gain market share, Best Buy has actually lost share in the profitable high end electronics market, and not just to Amazon, but also to Walmart and Costco. Both Walmart and Costco customers pay state sales taxes.
Best Buy’s performance shows that it is not a nimble merchandiser. Go into a Best Buy store and you will see some of the reasons why:
- It still devotes vast amounts of expensive retail space to low margin items-namely CDs and DVDs.
- Its sales force is not that knowledgeable about the products it sells. This is also true at Walmart and Costco, whereas Amazon largely relies on consumer reviews from its customers to move product.
- Best Buy sells products like vacuum cleaners, air conditioners and stovetops among the home theaters.
- The stores are huge, and stores that big have to have rapid turnover on a massive scale to be successful. Both Costco and Walmart meet this challenge by offering limited choices from top manufacturers. As an online merchant, Amazon can sell everything, but doesn’t have to warehouse massive inventories as does Best Buy.
My mother used to tell me, “the world doesn’t owe you a living.” Best Buy’s problems are more the result of its own poor choices than Amazon’s supposed sales tax advantage. One has to look no farther than Apple to see how a real merchant can profit even in a down economy.
- Store size :: Apple Retail Stores are many times smaller than Best Buy, Costco and Walmart. However its sales per square foot figures are off the charts. In 2009 an Apple Store in Manhattan had sales of $35,000 per square foot, while Best Buy’s national sales per square foot total was $930 for the same year.
- Selection and service :: Apple Retail Stores devote most of its space to high end electronics, and to free technical advice (the Genius Bar). A trip to the Geek Squad at Best Buy will produce an encounter with someone who wants to sell you something. That someone isn’t much of a geek in any event. The compact size of an Apple Store enable it to move out non-performing items quickly and replace them with things that sell.
- Intelligent product selection :: Apple is the largest music vendor in the world and a huge movie retailer, but other than iTunes gift cards, you can’t buy music or movies in its retail stores. Not one foot of retail space is devoted to music or movie sales.
- Coordination :: Apple Retail Stores coordinate with the Online Store. If they don’t have what you want, you can order to pick up in the store or have it delivered to your home.
Finally Apple does all of this while paying the same state sales taxes Best Buy does. Apple and Amazon, and for that mater Walmart and Costco adopted better business models that the folks at Best Buy. Charging Amazon customers sales tax, and I am one, will not draw me back into a Best Buy. To paraphrase my mother, we don’t owe Best Buy a living.
Source: G. Ware Cornell Jr. is a Board Certified Civil Trial Lawyer in Weston, Florida where he primarily practices employment law with the firm of Cornell & Associates P.A. He is a graduate of Emory University, the University of Georgia School of Law, and served as the first senior law clerk for United States District Judge William M. Hoeveler in the Southern District of Florida upon his investiture in 1977. Mr. Cornell is a Fellow of the Litigation Counsel of America, a trial lawyers’ honorary society. By way of full disclosure, he is also an Amazon Vine reviewer, though that was not a factor in this Guest Post.
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