Will This Trend Leave Best Buy Behind?

Best Buy’s (NYSE:BBY) loss is Amazon’s (NASDAQ:AMZN) gain as Pacific Crest analyst Chad Bartley confirmed Friday with his upgrade of Amazon. In a research note seen by Barron’s, Bartley argued that because the company is a “disruptive force in retail,” it is now a “must-own stock in large-cap tech.”

Citing a 27 percent upside, he raised his rating on the Internet retailer’s shares from a Sector Perform to an Outperform and lifted the price target to $346. Shares of Amazon were trading at $270.79 just after 2 p.m. Eastern Standard Time on Friday.

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As retail purchases are being made more and more often online, Amazon’s size and scale, low prices, service quality, and distribution capabilities have allowed the company to grow its share of the e-commerce market, and Bartley thinks that trend will continue.

The facts back up his thesis; Pacific Crest estimated that 9.4 percent of all 2012 retail sales in the United States were made online, an increase of 120 basis points year-over-year. In the same period, Amazon increased its share of the e-commerce market by 390 basis points, while its average growth rate in the previous two years only amounted to 300 basis points…

Amazon’s increasingly tight hold over the retail market has come at the detriment of many brick-and-mortar retailers, such as Best Buy. The company’s struggle with showrooming has become almost notorious. Best Buy’s shares lost 50 percent of their value last year as the practice of showrooming dragged down same-store sales. Electronics shoppers are increasingly using the retailer’s stores to examine and test products before purchasing them from cheaper Internet companies like Amazon, a tactic that contributed to a drop in same-store sales of 4 percent in the last nine months.

Best Buy’s situation will likely worsen as e-commerce transitions into mobile commerce, another area where Amazon is the dominant player. In his note, Bartley cited an eTail survey that reported 87 percent of retailers see mobile as the biggest growth area for the industry. As U.S. mobile e-commerce grew 70 percent year-over-year in 2012, Amazon is well set; mobile accounted for 10 percent of its e-commerce sales last year and, as the analyst noted, could “help accelerate Amazon’s share gains.” For perspective, a September comScore report showed that Amazon had 62 million unique mobile visitors compared to 38 million for eBay (NASDAQ:EBAY), 19 million for Wal-Mart (NYSE:WMT), 11 million for Target (NYSE:TGT), and 6 million for Best Buy.

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