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Best Buy online sales rise as Amazon collects sales tax

A building is reflected in the glass of a Best Buy store in New York August 21, 2012. REUTERS/Brendan McDermid
A building is reflected in the glass of a Best Buy store in New York August 21, 2012. REUTERS/Brendan McDermid

By Alistair Barr

SAN FRANCISCO (Reuters) - Best Buy Co, the world's largest electronics retailer, said its online sales have increased in certain markets as arch rival Amazon.com Inc collects tax on purchases in more states.

"In California, Texas and Pennsylvania where Amazon.com recently started collecting tax, it is very early, but Best Buy has seen a 4 to 6 percent increase in online sales observed in aggregate versus the rest of the chain," spokeswoman Amy von Walter wrote in an email to Reuters.

"While some people may still prefer to shop online, the sales tax parity has shown that people will shift their buying habits."

Amazon, the world's biggest Internet retailer, began collecting sales tax in California on September 15, weeks before the start of the crucial fourth-quarter holiday season. In the weeks leading up to the move, there were reports of binge buying of higher-priced items such flat-screen TVs by some California shoppers.

Amazon started collecting state sales tax in Texas in July and in Pennsylvania in September.

Critics of Amazon have argued it had an unfair advantage because big retailers, including Best Buy, Wal-Mart Stores Inc and Target Corp, have had to collect state sales tax on online sales for years because they have stores and other physical operations in these locations.

But many states, hungry for extra tax revenue in the wake of the 2008 financial crisis, have introduced new laws requiring that Internet-only retailers also collect sales tax.

Big retailers hope the requirement to collect sales tax will reduce Amazon's price advantage and help them recoup some sales that lost to the Internet retailer.

Best Buy also saw an increase of 6 percent to 9 percent in online orders that are picked up in its stores in those three states compared with the rest of its chain, von Walter said.

Best Buy, which has been among the hardest hit by competition from Amazon, reports holiday sales results on Friday.

Best Buy shares closed 5 percent higher at $12.21 on Thursday, while Amazon shares were down about 0.4 percent at $265.34.

Despite the tax changes, Amazon's consumer electronics prices were still at least five percent below Best Buy's during the holiday season, according to Anne Zybowski, vice president of digital retail research at Kantar Retail. However, Best Buy may have benefited from even a small change in this area.

"Particularly in consumer electronics, any narrowing of Amazon's price advantage at the margin is important because Best Buy brings service and other shopper benefits to the category," she said.

Best Buy will take away people's old TVs when they buy a new one and the company's Geek Squad service will install devices in shoppers' homes, services Amazon does not provide, she noted.

An Amazon spokesman declined to comment when asked if the company saw an impact on fourth-quarter sales from the imposition of sales taxes in California, Texas and Pennsylvania. In the past, Amazon executives have said there was little or no impact from such changes in other regions.

Several analysts have argued that shoppers use Amazon for its vast product selection and convenient, fast shipping and returns, and not just its low prices.

Other retailers may not see a sales boost because, in categories beyond consumer electronics where service is less important, there will not be such a swing to store buying, Zybowski said, citing health, beauty and cosmetics as examples.

"I don't think retailers should get too excited," she added. "Best Buy results are isolated to consumer electronics. Once you start getting over the $100 purchase price level, the tax matters."

The main point is that new state tax laws are making Amazon equal to every other retailer in the United States, she added.

"If this had happened to Amazon when they were just a bookseller years ago, they may not be as big as they are now," Zybowski said.

But Amazon has built huge customer loyalty through programs such as its Prime shipping service and its Kindle gadget-and-content ecosystem and this should drive sales growth, she added.

(Reporting By Alistair Barr; Editing by Leslie Adler and Andre Grenon)

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