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Amazon: When the Man Comes Around


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That's incredible - I didn't realize BBY has done so well.  Where did you find all of that info about Best Buy?  Is there a specific article?  Makes me question the automatic death of all the retailers you mentioned.  The key point that I think is missing is that both Circuit City and Radio Shack went bankrupt over the same time frame. 


Is that true though? I thought Circuit City went bankrupt long before Radio Shack. In fact unless I'm remembering incorrectly Best Buy had more to do with killing Circuit City than Amazon.


I seem to remember Circuit City went bankrupt twice?  I seem to remember going to a local Circuit City during/shortly after their bankruptcy and not being able to get any bargains...That would have been in the mid to maybe late 90's?  That might have been before AMZN was even in existence, certainly before they made any significant traction into electronics sales.


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Thanks all. This thread was actually quite helpful to me. Here is a potential pattern of what a successful response to the Amazon threat might look like:


- impact will take longer than initially expected as consumer's habits change

- but once the Amazon impact is obvious, the business will deteriorate rapidly

- if management is talented, they will recognize the threat, and respond aggressively. This will have a dramatic short-term impact on earnings and margins. Mr. Market will pay a very low multiple for the "melting ice cube". The result will be a dramatic drop in the stock price (say -60% to -80%).

- if the response is successful, revenue and profitability will stabilize. Mr. Market will be willing to assign a normal multiple.

- This results in a j-curve investment opportunity. The rewards for a successful turnaround can be enormous (say 4x) since increasing earnings are combined with a large multiple increase.

- But, the stock will also initially drop further and longer than expected in the down leg of the j-curve, so don't try to catch the falling knife.


Of course, this pattern only works for the successful turnarounds.


Another company going through this process is IBM. Time will tell if IBMs turnaround will be successful though.

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Thanks KCLarkin for the excellent analysis.


Broadly, the way I am thinking about this, is that technology is eroding the competitive advantage of many of these businesses. To be viable businesses, they must be providing a compelling value proposition to the customers. In retail that means (a) price (b) convenience and © selection.


The most important of these is price. If a business can consistently deliver on low prices, it is highlly likely to be a viable business.


Coming to Best Buy. To me the main reason for the successful turnaround has been the introduction of "Low Price Guarantee". Of course, to deliver on this they have to do lot of heavy lifting in terms of store redesign, productivity improvements, etc.


So one way of generalizing this to other businesses is to ask the question:


Can the business offer a low price guarantee or something close to that? Or does it rely on some friction or gimmick to make the customer pay a higher price?


Others factors might be more important in some cases. Say parts availability for auto retailers. But even in this case, I think they cannot just get away with charging high prices like they do now.



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