2. 1 Best Buy continues to gain share in the overall CE market despite Amazon’s impressive business and financial performance 1 Amazon is well positioned to deliver against customers’ needs for low prices and wide assortment, but ill-suited to provide the physical immersive experience they prefer 2 Amazon has made enhancements to their existing businesses and continues to create new business models and profit pools, including marketplace, Kindle, and Amazon Web Services 3 Despite their impressive performance, Amazon has limitations and risks, including impending changes to state sales tax laws and new competitive pressures 4 Amazon executive summary SOURCE: Analyst reports, BBY Competitive Strategies Group, Team analysis
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4. Amazon.com has over 60% share in movie sales and over 70% in music; entertainment overall is Amazon’s strongest category as they have 50% market share compared to Best Buy’s 5%
5. Best Buy has made strides in A/V equipment, which includes TVs, gaining four points of share year over year and actually beating Amazon in 4Q09Amazon outpaces Best Buy in online CE share growth… 1 Online market share, CE Percent of market Amazon Best Buy 03 2002 07 08 09 06 05 04 SOURCE: Comscore
6. 3 4 …but despite Amazon’s rapid online growth, Best Buy continues to outpace Amazon’s overall share growth in the CE market 1 Net share gain (2004-2009) US Market share % of total CE market (offline and online) CAGR 44% 3.7% 0.7 0.8 1.4 2.3 3.4 4.4 3% 2.0% 5% 6.0% Other retailers -4% -11.7% 66.3 65.5 65.2 63.4 59.3 53.5 05 06 2004 08 09 07 SOURCE: Stevenson Traqline
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8. When combined with their flexible and compressed SG&A structure, Amazon becomes an investment that commands a high multiple
9. AMZN currently trades at 65x earnings, far ahead of any competitor, including BBY at 14x, Apple at 23x, and Walmart at 15x+3% p.a. +67% p.a. 09 08 07 2006 SOURCE: Company financials
10. 5 Amazon’s performance is driven by their ability to keep SG&A costs low, a result of their flexible SG&A structure 1 SG&A costs % of sales Amazon SG&A costs % of sales -1% p.a. 20.2% 19.8% 19.3% 19.1% 18.8% Fulfillment 0% 8.4% 1.7% Marketing 2.8% 07 08 06 2005 2009 Technology and content 1.2% 5.1% Best Buy SG&A costs % of sales +1% p.a. 9.3% Stores** 0% 21.3% 20.8% 20.3% 19.7% 19.8% Other general and administrative 7.2% 1.3% Total SG&A 19.4% 17.6% 2005 07 06 2009 08 * Figures are for year ending Dec. 31, 2009 for Amazon and Q3 projected fiscal year 2009 for BBY ** Stores includes store labor, rent and taxes, but does not include D & A Source: Amazon 10-K, BBY internal data
11. 6 Best Buy continues to gain share in the overall CE market despite Amazon’s impressive business and financial performance 1 Amazon is well positioned to deliver against customers’ needs for low prices and wide assortment, but ill-suited to provide the physical immersive experience they prefer 2 Amazon has made enhancements to their existing businesses and continues to create new business models and profit pools, including marketplace, Kindle, and Amazon Web Services 3 Despite their impressive performance, Amazon has limitations and risks, including impending changes to state sales tax laws and new competitive pressures 4 Amazon executive summary SOURCE: Analyst reports, BBY Competitive Strategies Group, Team analysis
12. 7 Amazon continues to win on price…and product assortment 2 Price comparison by SKUs1 Percentage; 2010 Price per SKU of DSLR cameras, 10-11MP USD; 2009 Tied Best Buy lower 82 Amazon lower 1 Based on a price comparison of 128 overlapping SKUs SOURCE: Best Buy Competitive Strategies Group
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17. As more consumers look to buy “connected world” solutions, having a trusted in-house installation and service offering is an increasingly important factorIn-house service offering VV%
18. 9 m = X Although consumers spend more time per visit on Bestbuy.com, they visit Amazon more often, resulting in 4x as much time spent on Amazon.com per month 2 Time on site per visit Minutes +37% Time spent on site per month Minutes Amazon.com Bestbuy.com -74% Number of visits per month Number Amazon.com Bestbuy.com -81% Amazon.com Bestbuy.com Source: iConsumer clickstream analysis
19. 10 m Amazon’s conversion rate among online shoppers is higher than Bestbuy.com, and we are losing significant value to Amazon 2 …moreover, estimates suggest we lost $570M in value to Amazon last year …and of those that make a purchase at BBY or AMZN, 75% go to AMZN… 29% of Bestbuy.com visitors also visit Amazon… Where BBY.com visitors make their purchase Percent; 2009 Lost value from bestbuy.com visitor non-buyers $ Millions Total BBY.com visitors Percent; 2009 100 100 2,000 Also visit Amazon Bestbuy.com Amazon.com 570 29 Dell.com 537 Visit Bestbuy.com only 213 Walmart.com 75 Amazon.com 71 680 All others Total BBY.com visitors Visitors that do make purchase Dollar Share Source: iConsumer clickstream analysis, Comscore
20. 11 Best Buy continues to gain share in the overall CE market despite Amazon’s impressive business and financial performance 1 Amazon is well positioned to deliver against customers’ needs for low prices and wide assortment, but ill-suited to provide the physical immersive experience they prefer 2 Amazon has made enhancements to their existing businesses and continue to create new business models and profit pools, including marketplace, Kindle, and Amazon Web Services 3 Despite their impressive performance, Amazon has limitations and risks, including impending changes to state sales tax laws and new competitive pressures 4 Amazon executive summary SOURCE: Analyst reports, BBY Competitive Strategies Group, Team analysis
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24. Additionally, Amazon has made an effort to expand their other downloadable media offerings, inlcuding Amazon MP3, which current offers over 8 million songs, and Amazon Video on Demand, which offers streaming movies and TVDownloadable media
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29. Includes sales of physical goods, all downloadable media, Kindle device and content sales, etc.
30. Drives ~54-56% of overall profitability2009 SOURCE: Best Buy Competitive Strategies Group
39. Estimated to generate ~32% of overall revenue and ~33-35% of profitabilityTools & Industrial Apparel Physical media Sporting Goods Digital downloads Books Toys & Kids Home & Garden Grocery & Beauty Consumer Electronics Kindle SOURCE: Amazon.com, BBY.com
40. 15 Amazon’s marketplace allows third party merchants to sell alongside Amazon and provides ~30% of overall profitability 3a How it works 5 4 Payment is routed to Amazon first, who collects 6-15% commission and various fees, then sends remainder to Target Customer decides to purchase the Target product, and pays via Amazon.com 6 Order is sent to Target for fulfillment (Amazon offers fulfillment services) 1 3 2 Target uploads inventory to Amazon.com marketplace Customer can view “more buying choices” and find Target’s listing for the same product Amazon posts Target’s listing for the same product alongside their inventory and other third party merchants How it makes money… Marketplace Amazon as seller 84% 83% 2% 6% 14% 11% 0.56 1.73 3.19 3.26 Profit Price Proc. Fee Seller rev Price COGS Shipping Profit SOURCE: Team Analysis, Amazon.com, Amazon Financials,
53. Amazon has used IMDb as a advertising mechanism; for example, if someone searches for information on Avatar, they will be presented with a one-click reroute to Amazon where they can buy the DVD
83. Has over 11 millions songs in its current catalog
84. First store to sell without digital rights management (DRM)SOURCE: Amazon.com, Analyst reports, FastCompany.com
85. 19 Best Buy continues to gain share in the overall CE market despite Amazon’s impressive business and financial performance 1 Amazon is well positioned to deliver against customers’ needs for low prices and wide assortment, but ill-suited to provide the physical immersive experience they prefer 2 Amazon has made enhancements to their existing businesses and continues to create new business models and profit pools, including marketplace, Kindle, and Amazon Web Services 3 Despite their impressive performance, Amazon has limitations and risks, including impending changes to state sales tax laws and new competitive pressures 4 Amazon executive summary SOURCE: Analyst reports, BBY Competitive Strategies Group, Team analysis
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87. Four states have recently passed laws designed to collect sales tax from e-commerce engines that enjoy “remote seller” status
90. Apple’s iPad debuts on April 3 and has already sold out its initial order supply
91. The iPad, although slightly more expensive than the Kindle, will have much greater functionality than the Kindle, including access to a wider array of media
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93. Customers’ number one complaint with online shopping is the lack of a physical store to try the product and get your questions answered; with no plans to open physical stores, Amazon will be unable to address this concern Lack of physical stores
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95. Best Buy gained 3 points of share in the overall CE market last year while Amazon gained 1 point
97. Customers say not being able to interact with a knowledgeable employee is their biggest frustration with online shopping and our Blue Shirts fit that need
98. A great collaborative filtering engine that produces recommendations and product bundles
99. We actually have better and more comprehensive information to leverage with nearly a billion total visits (in-store, online, RewardZone, services, etc.)
112. Bestbuy.com’s splash page provides standard content despite an extensive purchase history and 2 items in the cartAmazon.com effectively uses customer information to provide recommendations and typically-bundled products… 3c SOURCE: Amazon.com, BBY.com
113. 24 Amazon has developed the Kindle, connecting consumers to books and other media electronically 3d Kindle Magazines Blogs $1.99/month $2.99/month $259 Books Newspapers Non-revenue “connected” features $13.99/month $9.40 SOURCE: Amazon.com
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115. As of July 1, 2008, New York state required sales taxes to be collected from e-retailers that use local marketing affiliates
119. In February, Colorado passed a law requiring e-commerce sites to either collect sales taxes or provide the state with sales information so it can collect taxes from consumers directly; Amazon has severed ties with all Colorado marketing affiliates as of March 15
120. Six other states are considering similar provisions, including California, Connecticut, Illinois, Maryland, Virginia, and Vermont
121. Due to increasing budget constraints, more states are likely to look at remote seller sales taxes as a potential revenue source
122. 23 states have come together to try to create a national sales tax that treats online retailers the same as brick-and-mortar retailers
123. Estimates of lost sales tax revenue are as high as $12 Billion by 2012
124. In the first half of 2009, after New York passed the new regulations, the conversion rate for online retailers in the state fell by 11.4%, a much bigger drop than the 7.4% seen across the country