Best Buy Marketplace Comes Late to the Online Retail Party

by Anthony John Agnello | September 8, 2011 9:46 am

Best Buy Best Buy Marketplace Comes Late to the Online Retail PartyThere was a time when simple commerce on the Internet was something to be excited about. When eBay (NASDAQ:EBAY[1]) went from a keen idea with a cult following to one of the most successful public offerings of the first dot-com boom back in 1998, it was one of those rare moments that new technology was not a fad but a clear herald of the future.

Some attempted (poorly) to mimic its private auction format like Yahoo (NASDAQ:YHOO[2]), but other online businesses found success in eBay’s legacy simply by enabling small businesses and private sellers to sit alongside large-scale retail partners in a single online shopping destination. It is the model that helped cement Amazon (NASDAQ:AMZN[3]) as the premier retail presence online and paved the way for its nearly $100 billion valuation today.

Of course, the online market trend has aged a decade. It is old hat, an established business with entrenched players. So why is electronics retailer Best Buy (NYSE:BBY[4]) just now showing up to the game?

The Richfield, Minn.-based company announced the opening of the Best Buy Marketplace on Wednesday, an expansion of its online business to include products from a variety of retail partners. Reuters reported that those partners include a plethora of small to large online electronics retailers, from laptop battery distributors like Mambate.us to Internet stalwarts like Buy.com. All products purchased through the Best Buy Marketplace are eligible for Best Buy’s “Reward Zone” loyalty program that lets customers earn points toward promotional items and discounts on future purchases.

In the short term, the Marketplace initiative is a strategic move in Best Buy’s broader holiday sales plans. In 2010, Best Buy made an expanded retail operation its holiday priority[5], opening a fleet of small “Best Buy Mobile” locations to spur sales. Online sales, however, are proving to be much more potent for retailers of every stripe, giving companies in the electronics space with no retail presence, like Amazon, a leg up.

For Best Buy, though, this need to find new customers online goes beyond the holiday season. Poor sales of major products like televisions[6], one of the company’s primary sources of revenue over the years, have forced Best Buy to reconsider its retail operations worldwide. In the past 12 months, it has announced the closure of its entire operation in China as well as plans to decrease its total retail space in the U.S. by 10%, closing large stores in favor of the aforementioned Best Buy Mobile locations.

As Best Buy moves to emulate its fiercest competitors, though, the question remains: Why will customers buy a product at BestBuy.com when they can get it at Amazon, eBay or even independent discount electronics retailers like NewEgg? As a business strategy, the Best Buy Marketplace is sound: More selection at competitive pricing will, under ideal conditions, lead to more sales. Ideal conditions, however, would require the Best Buy Marketplace to have opened in 2005 or earlier.

At this point, there is simply no evidence that Best Buy’s offering can differentiate itself in a crowded market. And considering that Best Buy shares have shrunk from above $40 in December 2010 to below $25 on Wednesday, differentiation is precisely what the company needs.

As of this writing, Anthony John Agnello did not own a position in any of the stocks named here. Follow him on Twitter at @ajohnagnello[7] and become a fan of InvestorPlace on Facebook[8].

Endnotes:
  1. EBAY: http://studio-5.financialcontent.com/investplace/quote?Symbol=EBAY
  2. YHOO: http://studio-5.financialcontent.com/investplace/quote?Symbol=YHOO
  3. AMZN: http://studio-5.financialcontent.com/investplace/quote?Symbol=AMZN
  4. BBY: http://studio-5.financialcontent.com/investplace/quote?Symbol=BBY
  5. made an expanded retail operation its holiday priority: http://investorplace.com/2010/09/borders-toys-r-us-use-pop-up-stores-spur-holiday-sales/
  6. Poor sales of major products like televisions: http://investorplace.com/2011/07/3d-television-3-d-tv-sales-sony-panasonic-toshiba/
  7. @ajohnagnello: http://twitter.com/#%21/ajohnagnello
  8. InvestorPlace on Facebook: http://www.facebook.com/pages/InvestorPlace/178906405484848

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