Amazon.com has been reported to be in alliance talks with electronics retailer Best Buy.
A report on TheStreet.com has said that eRetailer Amazon.com and consumer electronics retailer Best Buy are in talks over a strategic alliance. The news follows the recent rumor of an alliance between Amazon and retail giant Wal-Mart, which now looks unlikely to happen. While Amazon and Best Buy have refused to confirm or deny the report, this alliance looks more feasible than the Wal-Mart tie up.
There’s no question that Amazon would benefit from a tie-up. Despite the dotcom doom, pureplay eCommerce category leaders and those targeting specific customer segments with differentiated products and services are expected to survive. But still, the convergence of online and offline channels means that it is as beneficial for online firms to establish an offline presence as it is for bricks and mortar firms to build Internet operations.
But Amazon has cash problems. Its working capital in Q4 2000 was just $346.2 million and some analysts predict a period of negative working capital this year. Since reaching a profit is such a high priority for the firm, investment in real estate would be unviable.
The Wal-Mart deal looks to have foundered because Wal-Mart can afford to spend heavily to make itself a leading eCommerce player, without having to share revenues with Amazon. But an Amazon-Best Buy tie-up would be closer to Amazon and Toys R Us’ existing deal. Like Best Buy, Toys R Us had a strong name but a second-tier eCommerce operation; Amazon’s involvement turned the joint venture into a great success. The same could happen for Best Buy.
Meanwhile, Amazon would benefit from a short-term cash injection to boost its credibility with suppliers. In the longer term, it would also gain from establishing a retail presence through Best Buy’s 1,800 retail outlets in the US. This would enable Amazon to develop a multi-channel strategy to target new and existing customers with marketing initiatives and to set up customer service centers. Overall, this would contribute towards reducing Amazon’s customer acquisition costs.
