If Amazon Wants a Storefront It Should Buy Gamestop, Not Best Buy
Many have argued that it would be in Amazon's (NASDAQ: AMZN) best interest to step into the brick and mortar game with a storefront offering.
While old fashioned brick and mortar retail may be in its death throes, there is no denying the fact that consumers prefer to test a device out before they commit to purchasing it -- even if they ultimately purchase it online. This phenomenon, which has come to be known as “showrooming” has been cited as a key factor in the decline of Best Buy (NYSE: BBY).
Though it may not be anytime soon, Best Buy and other stores like it could soon go the way of Circuit City -- that is to say, out of business.
Should this occur, Amazon could suffer. While it continues to innovate with its Kindle lineup of hardware, consumers may shy away in favor of devices that have matching stores to showcase them. Apple (NASDAQ: AAPL) has its own wildly successful line of Apple stores, while Microsoft (NASDAQ: MSFT) is working to follow suit.
Even if it isn't going away, Best Buy could take steps to actively ward against showrooming -- something they have promised to do -- or simply refuse to sell Amazon's Kindle lineup altogether, something Target (NYSE: TGT) has already done.
This has lead some to believe that Best Buy, with its depressed shares, is a takeover candidate for Amazon.
Yet, if Amazon wants a showroom it ought to look elsewhere. Perhaps Gamestop (NYSE: GME)? The video game retailer would be an intriguing Amazon acquisition for a few reasons.
First, Gamestop stores would offer a more strategic advantage compared to Best Buy. The majority of Best Buy's stores are mammoth, warehouse style buildings. If Amazon wants locations to show off its Kindles and other devices (ala Apple) it simply wouldn't have a need for that much real estate. Gamestop stores are smaller and more numerous.
Second, Gamestop brings the obvious gaming moniker and a level of video game retailer expertise -- a market Amazon may soon be looking to enter in earnest. After conquering digital books, Amazon has switched to movies, bolstering its Amazon Prime streaming video offerings with numerous deals -- much to the chagrin of Netflix (NASDAQ: NFLX).
With Amazon striving to make inroads in offering digital content, video games would be the next logical market. Weeks ago, Amazon took its first step in that direction when it unveiled its game studio. The company then took it to the next level by pushing video gaming at its Kindle Fire HD press conference. Chief Executive Officer Jeff Bezos played a game on the new Fire HD while onstage, and then said that its Whispersync technology would be integrated to allow consumers to continue playing games on different devices through Amazon's cloud services.
Lastly, Gamestop has shown some ingenuity in recent years by entering the trade-in and refurbishment electronics market. Unlike Apple, (which makes a significant margin on its devices), Amazon doesn't care about making money from selling its hardware directly. Rather than make money on the devices, Amazon has chosen to make its money when users purchase Amazon content-like books and movies, (and perhaps video games someday soon).
By breaking into the used and refurbished market, Amazon could offer original tablets at even lower price points, further expanding the base of consumers it has to sell its digital offerings to.
At any rate, Amazon may simply avoid setting up a brick and mortar operation, or take its own initiative to build a retail presence. However, if the online retailing giant wants a matching storefront, they would be better served to acquire Gamestop rather than Best Buy.
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