InvisibleHand Blog

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Best Buy’s Amazon Price-Match Promise: Could Cost Best Buy inc Over $400 Million and Shareholders Billions.

  • 75% of Best Buy SKUs are cheaper at Amazon
  • Average price difference on cheaper products is 17%
  • Best Buy’s price-match promise could cost it over $400 million
  • EPS impact likely to exceed -$1.12
  • Price-match promise will only generate a gross profit with a 100% uplift in volume and an increased cross-sales value to 100%

Embattled electronics retailer, Best Buy, could lose over $400 million if it follows through with a controversial price-match promise against rival Amazon.com.

Analysis carried out using InvisibleHand’s Real-Time Price API shows that Best Buy would incur these losses, even if only 30% of Best Buy shoppers take advantage of the offer.

InvisibleHand’s Real-Time Price API compared the live prices of over 22,000 Best Buy products against identical products at Amazon.com. 75% of products were cheaper at Amazon, with an average price difference of 17% on those products.

Best Buy have mooted the introduction of a price-match promise to combat the growing use of “showrooming” in which customers browse Best Buy stores to touch and test prospective purchases, but then transact at competing online merchants – particularly Amazon.com.

The effect of Best Buy’s offer was calculated by combining Best Buy sales & revenue data – disclosed in their Q4 2012 earnings statement – with data from InvisibleHand’s Real-Time Price API.

The analysis revealed that if 30% of customers take up the price-match offer, Best Buy will see revenue growth of $537 million compared to the 2011 holiday season. However, gross profit would suffer a negative impact in the region of $400 million, as the retailer gives away an already slim margin on its products in order to match the lower Amazon prices. The hit on gross profit would have a direct impact on Best Buy Earnings Per Share (EPS) for the quarter, estimated to be in excess of $1.00.

In order to generate a positive impact at the gross profit level, the price-match promise would need to generate a 100% uplift in volume and raise cross-sale value to 100%.

The figures get bleaker if a larger percentage of shopper take advantage of the offer:

  • At 40% uptake, gross profit will be down by -$549mm with an EPS impact -$1.50
  • At 50% uptake gross profit will be down -$678mm an EPS impact of -$1.87

The effect on EPS is dramatic. BBY adjusted EPS guidance for FY 2013 is $3.50-3.80. In the first half of the year BBY announced an adjusted EPS of $0.92, meaning they would need to generate $2.58-2.88 EPS in the last 2 quarter of the financial year. A price-match promise would make it extremely challenging for Best Buy to hit its EPS.

Equity analyst, Michael Pachter of Wedbush Securities, commented “InvisibleHand’s proprietary analysis makes it quite clear that Amazon has a huge price advantage over Best Buy, driven primarily by Best Buy’s large physical presence.  While it is impossible to project the extent of uptake on the Best Buy price-match guarantee, InvisibleHand’s analysis appears soundly reasoned, with each 10% in uptake costing Best Buy $0.37 in EPS”

Yannick Roux, Associate at Forward Venture Partners, the investment company that backs InvisibleHand, commented: “We have watched as InvisibleHand has evolved beyond a consumer tool into a B2B2C pricing company that is powering pricing & real-time algorithmic decisions inside massive ecommerce companies.  Today any etailer at scale has to understand valuable competitive intelligence on a minute by minute basis”.

 

About INVISIBLEHAND Software Ltd.

InvisibleHand’s Real-Time Price API is the first and only service to provide real-time price and product-matching intelligence to business across millions of products at hundreds of retailers in United States, United Kingdom & Germany. It is built on InvisibleHand’s patent-pending technology which already powers 6 million downloads of the popular InvisibleHand browser extension for consumers; is used by many of the largest retailers & manufacturers in US & UK, and has found over $1 billion of savings for users.

 

About MICHAEL PACHTER

Michael Pachter is an electronics, digital media, video game & social media equity analyst with Wedbush Securities. He is also the Head of Research for the Private Shares Group, a Wedbush division.

 

About WEDBUSH, Inc.

WEDBUSH, Inc. is a leading financial services and investment firm that, through its holdings, provides private and institutional brokerage, investment banking, equity research, fixed income, clearing, sponsored-access, and execution, private capital, commercial banking, and asset management  to individual, institutional and issuing clients. Founded in 1955, the firm’s largest holding, Wedbush Securities, is one of the nation’s largest securities firms and a top ranked Liquidity Provider for the NASDAQ exchange. Headquartered in Los Angeles, with over 100 offices, Wedbush is dedicated to its delivering its clients relentless service, financial safety, continuity, and advanced technology. (www.wedbush.com)

 

About FORWARD VENTURE PARTNERS

Forward Venture Partners invests across digital media, publishing, ecommerce and advertising. Forward Venture Partners invests for pure financial return, but is able to bring expertise and insight from its sole Limited Partner Forward Internet Group, an independent web company with revenues exceeding £100 million

 

METHODOLOGY

InvisibleHand’s Real-Time Price API was used to compare over 22,000 live prices from Best Buy against live prices for identical products on Amazon.

Revenue, profit and EPS modelling were were carried out using Best Buy’s Q4 2012 earnings statement. The model’s key assumptions are:

  • BBY experience -5% YOY revenue growth – in line with latest quarters statements.
  • 30% of BB customers will take advantage of the BBY price match promise
  • BBY will gain 20% sales volume – because of uplift of customers coming into stores, and conversion uplift – as a consequence of the price match promise.
  • BBY will gain 20% revenue on sales from additional cross-sales (as a reference point Amazon revenue from cross-sell is in excess of 30%)

Updated notifications now across the whole of InvisibleHand!

Great news – we’ve finally completed our notification updates across the whole of InvisibleHand. So you can now see the smart new notifications when you’re shopping for the cheapest flights, hotel bookings and car rentals too!

We’ve kept the same features and buttons for flights, hotels and car rentals, the notification is simply cleaner, smarter and up to date!

See for yourself:

We’ve had great feedback so far and we’d love it if you left us a review on the Google Chrome or Firefox extension galleries.

Alternatively, write to us directly at info@getinvisiblehand.com!

InvisibleHand at the Performance Marketing Awards

We’re off to the Performance Marketing Awards in London tonight, wish us luck!

We’ve been nominated in four categories:

Publisher Innovation

Best 3rd Party App

Best in Retail

Best in Travel and Leisure

We took home two of the above awards last year, so fingers crossed for a repeat…

InvisibleHand notifications get a fresh look…

If you haven’t seen it already, why not?

We’ve decided to give our golden notifications a much deserved makeover. The notifications are now cleaner, more helpful, smarter and bigger!

The price differences in the drop down are now much easier to navigate, with lower priced retailers emphasised with a green circle next to them, higher priced retailers with a red circle and retailers at the same price have an orange circle. You can also handily view reviews on the product, if available, from the “more information” button next to this coupled with the “related items” suggestions.

Just have a look at the screen shots to see for yourself:

The feedback and social media buttons are available to view at the far right of the notification, along with the InvisibleHand Facebook app “wishlist”.

We’ve already started getting feedback through the new email contact sheet (the envelope icon in the social media drop down), so with more user feedback we’re expecting our notifications to continue to grow from strength to strength!

You can see this in action for products at the moment and it won’t be long until hotels and car rentals are updated ;-)

Start your search with InvisibleHand

It’s here!

If you would prefer to leave behind the golden notifications for something full screen, then you can now start your search with an InvisibleHand search site which lists all the available prices in a handy webpage.

Even better – it’s incredibly easy to switch between the flights, car rentals and hotels option, with the travel tabs at the top. A bargain hunters holiday booking dream!

Take a look at the screen shots below to see how you could be simplifying your online searches, or try it for yourself here.

Look out for shopping comparison which is coming soon…

What do you think of the new InvisibleHand site? Will it change your online searches for the better?

Let us know!

Es ist gut, ja?

We hope our German users managed to catch InvisibleHand’s mention in the Hamburger Morgenpost!

We’re very happy that InvisibleHand has been highlighted as a great extension for Chrome and Firefox, as we’re sure you also agree.

If you haven’t seen it yet, then check it out below. Don’t forget to show your friends too ;-)

 

InvisibleHand is one of the best Firefox Addons!

But you knew that already of course…

We’re happy to announce that as well as InvisibleHand gracing the pages of Mozilla Firefox’s top 25 extensions of all time, being a featured extension on Chrome and Safari, and being frequently recommended on Lifehacker, tech site Make Use Of has added us to their list of Best Firefox Addons!

You can find us in the shopping section, alongside retail giant Amazon’s offering – ‘Amazon Add to WishList’

InvisibleHand is one of the 'Best Firefox Addons'

What do you think? Do you agree we’re one of the best shopping addons for Firefox?

We’re thrilled to be recognised again as a great money saving extension!

Remember floppy disks?

We had to share this funny image gallery we found on tech supersite Mashable.

They’ve made a top ten album of all the old gadgets and gizmos upcycled into bags and purses etc… Old favourites such as VHS tapes, cassette tapes and floppy disks are in there – remember them?

But don’t worry, as the best price comparison extension around InvisibleHand has found the cheapest floppy disks here if you do actually still use them…

Hurray “The New iPad” has been announced… let’s get a cheaper iPad 2!

So after “The New iPad” announcement yesterday, surely what most of our bargain hungry users are thinking is – does this mean the iPad 2 will be cheaper now? Of course it will!

We don’t think the prices will be at their lowest until after ”The New iPad” has officially hit stores next week, but it didn’t stop us having a quick nose around online with our handy extension…

So far we found the bargain friendly site eBay has swept the board across the US, UK and Germany for the cheapest 16GB iPad 2 with Wi-Fi in black. But as most online shoppers will know the prices change online constantly, so keep an eye on InvisibleHand for the lowest prices – as they change! That’s what makes us unique.

The lowest prices at the moment are…

USA = $420

UK = £300

Germany = €350

Happy shopping!

More awards news – InvisibleHand has been shortlisted for FOUR Performance Marketing awards!

We’re incredibly excited to announce our awards nomination streak hasn’t ended yet – in fact we’ve been nominated for FOUR awards at the prestigious Performance Marketing Awards!

This is a pretty big big deal for InvisibleHand – we walked away from these awards last year with two of the awards we’re nominated for…

Publisher Innovation

Best 3rd Party App

…and we’ve got our fingers crossed to do this again plus bag two new ones!

Best in Retail

Best in Travel & Leisure (completely new to the PM Awards, fingers crossed we can put our name on it..)

The awards take place on 15th May so wish us luck!