Problem for Bezos: Mall Becoming Cheaper Than Amazon

August 21, 2013 Leave a comment

August 19, 2013, 12:21 PM

Problem for Bezos: Mall Becoming Cheaper Than Amazon

By Tom Gara

You might think the biggest challenge for Amazon founder Jeff Bezos is figuring out how to make money running a print newspaper, but here is a risk hitting much closer to home: Brick-and-mortar retail stores are becoming cheaper than AmazonAMZN +1.10%. At least one store, that is. Prices at Bed Bath & BeyondBBBY +1.79% were on average 6.5% less than at Amazon for a basket of 30 items chosen by analysts atBB&TBBT +0.90% for one of their periodic pricing studies comparing the retailers. “We are becoming increasingly concerned Bed Bath & Beyond is sacrificing gross margin in order to drive top-line growth,” BB&T said — that is, increasingly concerned that Bed Bath & Beyond is starting to behave more like Amazon.One big factor helping Bed Bath & Beyond are the 20% off coupons it regularly sends to its customers. Once you adjust for those, the price gap widens out to 25%.

But even without the coupons, Bed Bath & Beyond is cheaper than Amazon for many items, sometimes considerably so. This shower curtain, for example, is $24.99 at the former and $32.39 at the latter — a 23% difference before any coupons are taken into account.

The price competition is another sign of the multi-front battle between Amazon and the giants of American retail. Some, like Best BuyBBY +10.06%, have introduced price match guarantees promising customers to meet any Amazon price for items in their stores. Others, including Wal-Mart, are putting an increasing focus on their online operations, and using their networks of physical stores as distributed delivery points.

Most importantly, Amazon is gradually losing a price advantage it long enjoyed by not charging state sales taxes. While the company has done deals with a number of state governments to start collecting the taxes — including major markets like California, Texas, New Jersey and Florida — in states where it still does not collect sales tax it enjoys a 5%-10% “pricing advantage,” BB&T wrote.

That advantage is also set to be scaled back by the proposed Marketplace Fairness Act, which has passed the U.S. Senate but has yet to be put for a vote in Congress. Amazon supports the Act, which would require online retailers to collect state sales taxes, as do the big brick-and-mortar retailers.

It’s not just physical retailers putting Amazon in their sights — online competitors also seem focused on matching the company’s low prices. Today online retailer Overstock announced it would match all Amazon prices on books, in a move coming just a month after the company said it would undercut Amazon by 10% in the book market — a discount Amazon quickly matched.

“Last month we started a book pricing war with Amazon,” said Patrick Byrne, Overstock.’s chairman, in a statement announcing the price matching. “We’re hoping to continue that battle, in a way that lessens any harm to the mom-and-pop booksellers we consider our comrades in arms.”

Filed under TMT Trends

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Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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