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Best Buy's New Weapon Against Amazon: Try Before You Buy
By Jason Del Rey
Posted: June 16, 2017 9:05am PDT

Over the last few years, the idea of short-term rentals has taken off in industries from lodging to fashion. Now Best Buy is trying to push that same trend into the mainstream for consumer electronics.

Later this month, the big-box retailer will start advertising try-before-you-buy rentals on its website for cameras, audio equipment and fitness trackers, the company recently told Recode. Best Buy is working with a San Francisco-based startup called Lumoid on the partnership.

Best Buy will feature the try-before-you-buy option on BestBuy.com and then send interested customers to Lumoid's website to make the rental. Customers earn about 20 percentage of the rental price back in Lumoid credits and can use them if they go on to buy the item outright.

For Best Buy, the partnership could evolve into a way to wring more dollars out of so-called "open box" items -- these are goods that a Best Buy customer has bought but then returned so they can't be resold at full price. Best Buy is providing these goods to Lumoid to rent out.

Perhaps more importantly, the offering could also help the $39 billion retailer develop a connection with customers earlier in the buying process -- perhaps increasing the odds that they will turn to Best Buy over a competitor like Amazon when they are ready to buy.

"Customers are not walking into physical stores for discovery," said Aarthi Ramamurthy, Lumoid's founder and CEO. "They already know what they want and they just go in to get it."

Best Buy has battled through the rise of Amazon better than many industry insiders expected over the last couple of years. A price-matching policy along with the bankruptcy of some competitors - coupled with above-average e-commerce growth -- have contributed to a stock price increase of 67 percent since this time two years ago.

The partnership seems like a smart test to see if it can carve out a new advantage. Amazon does not offer a similar service, but I'd be surprised if they have not taken a close look at it.

Both Best Buy and Lumoid seem to recognize that some customers will continue to use their own makeshift rental method: Buying an item knowing there is a good chance they will end up returning it.

But for higher-priced items, a $50-a-day rental may win some of these people over, especially those who don't have cash to lay out. Shoppers can also get a week-long try-out with an Apple Watch, for example, for $50 through Lumoid.

So how good is Lumoid at turning triers into buyers? The startup does best in the wearable category, where around one in three renters go on to purchase the item, Ramamurthy said. (It's worth noting that some Lumoid customers rent cameras for a specific occasion and are not looking to buy it from the start.)

Customers can buy the item they rented for a discounted price, since it's an "open box" item and may have been rented out to others. They can also choose to purchase a brand-new one through Lumoid.

Best Buy declined to comment on the financial terms of the partnership, but most deals of this nature include a revenue-sharing component.

The company also declined to say whether it is taking an equity stake in Lumoid as part of the deal.


© 2017 Re/Code. Syndicated here under contract with YellowBrix, Inc. All rights reserved.
 

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