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This is a rather simple thesis regarding Best Buy's (NYSE:BBY) new price matching initiative, which will enter into effect on March 3. Basically, price matching is synergistic with the new rules calling for online retailers to collect sales tax. These rules are spreading across States, hitting Texas, California, and Pennsylvania, in the last semester, but might go National if legislation making its way across the Senate and Congress gets ultimate approval.

Why is it synergistic?

It's quite simple. Before online retailers such as Amazon.com (NASDAQ:AMZN) were forced to collect sales taxes, even if Best Buy matched prices with them, the "all-inclusive" final price would still be lower in the online retailer, simply because the online retailer would be some kind of "duty free" store*. For instance, let's say Amazon.com priced a given LCD TV at $1000 in California and Best Buy had the same model at a price-matched $1000. The consumer would still save around $80 by ordering from Amazon.com.

Not so after the sales tax starts getting collected. Now the LCD TV would cost $1000+tax both at Amazon.com and Best Buy. Indeed, Best Buy makes this clear in its announcement of the new initiative, here (bold is mine):

At the time of purchase, we will match the current pre-tax price for new, identical, immediately available products from a local retail competitor's store and these designated major online retailers: Amazon.com, Apple.com, Bhphotovideo.com, Buy.com, Crutchfield.com, Dell.com, Frys.com, hhgregg.com, HP.com, HomeDepot.com, Lowes.com, Newegg.com, OfficeDepot.com, OfficeMax.com, Sears.com, Staples.com, Target.com, TigerDirect.com and Walmart.com. We will match prices between our stores and BestBuy.com ®. We will also match prices post purchase if we lower our price within 15 days of your purchase.

This probably explains why it took so long for bricks and mortar retailers to price-match online retailers. It didn't make any sense to do so before online retailers had to collect sales tax. But as the obligation spreads more and more, it makes more and more sense for this to happen. So it is happening.

This also tells us that the price matching effect won't be all instantaneous. Right now Amazon.com's need to collect sales tax covers about 35-40% of the U.S. population; there is still room for this percentage to expand, and thus for price matching's effect to expand as well.

Conclusion

While sometimes bricks and mortar stores are said to have been slow to react to online retail's growing influence, the truth is that up until now it made little sense to price match online retailers, since the lack of enforcement of equal-ground rules for sales tax collection meant that price matching was ineffective.

This is now changing rapidly, and with the prospects for online retailers dim, the prospect for bricks and mortar retailers improve.

Source: Price Matching Is Synergistic With Sales Tax Collection