When Retailers Fight Back Against Amazon

Bed Bath & Beyond (BBBY) now prices a raft of stuff cheaper than Amazon.com (AMZN), joining Target (TGT) and Best Buy (BBY) in making price adjustments to keep business away from the online retailer. So how’s that strategy working out for investors in these companies?

Target and Best Buy announced new policies last fall that guaranteed customers they would match advertised prices by competitors, including Amazon. That went beyond so-called low-price guarantees at retailers like Wal-Mart Stores (WMT) and Toys R Us, which exclude matching Internet ads.

Although Bed Bath hasn’t followed with a similar policy, a research analyst at BB&T found prices for a random 30 items in those earth-bound stores were on average 6.5% cheaper than at Amazon, according to The Wall Street Journal’s Corporate Intelligence blog. Those items were a whopping 25% cheaper when customers used one of Bed Bath’s ubiquitous 20% off coupons.

Not surprisingly, the BB&T analyst worried that Bed Bath was sacrificing profit margins in the fight. The chart showing the changes in gross margins for Bed Bath, Target and Best Buy adds credence to that concern.

BBBY Gross Profit Margin TTM Chart

BBBY Gross Profit Margin TTM data by YCharts

YCharts, proclaiming Amazon the Suicide Bomber of Retail (it trashes other companies’ profits, as well as its own), has extensively covered the competitive retail landscape and how Amazon has altered it. TJX (TJX) sidesteps amazon by stocking goods the online giant doesn’t have. We’ve written recently about Amazon’s threat to Staples (SPLS) ; how some Amazon-resistant stocks are crushing the market; eBay’s (EBAY) competition with Amazon ; and Ulta’s (ULTA) vulnerability to Amazon.

For more coverage of Amazon and its impact on retail stocks, go to our Amazon page.

Setting prices lower is supposed to raise revenues, and Bed Bath has reported significant revenue growth since last summer. Target and Best Buy, on the other hand, shrank. Amazon still reports significant revenue growth, but its rate of growth has slowed.

BBBY Revenue Quarterly YoY Growth Chart

BBBY Revenue Quarterly YoY Growth data by YCharts

So have low-price strategies helped shareholders at all? So far this year, Bed Bath’s share price has far outperformed Amazon’s and Target’s, both of which barely meet S&P 500 returns. Best Buy’s share price has shot higher from a very low base after competition drove it to crisis last year.

BBBY Chart

BBBY data by YCharts

It’s very early days for measuring the long-term effects of these low-price strategies, and of course many other factors affect these companies’ financials. But if these practices eventually do prove productive – if Bed Bath, Target and Best Buy begin to gain sales at Amazon’s expense – there will be plenty of investment opportunities in other retailers desperate for ways to fight the online giant.

Dee Gill, a senior contributing editor at YCharts, is a former foreign correspondent for AP-Dow Jones News in London, where she covered the U.K. equities market and economic indicators. She has written for The New York Times, The Wall Street Journal, The Economist and Time magazine. She can be reached at editor@ycharts.com. Read the RIABiz profile of YCharts. You can also request a demonstration of YCharts Platinum.



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