and consumer electronics retailer
are in "senior-level" discussions over the formation of a strategic alliance, according to one person familiar with the talks.
The potential deal could be modeled after the one between Amazon and
Toys R Us
, which together operate a co-branded online toy store.
Justin Osmer, an Amazon spokesman, said, "We don't respond to rumors or speculation. I will say that our program with Toys R Us is doing very well, and that we have had lots of inquiries
about potential alliances." A spokeswoman for Best Buy, based in Eden Prairie, Minn., said the company doesn't comment on rumors.
There's no timetable for the companies to complete a deal, and the talks could still end with no agreement.
These talks follow widespread rumors -- later debunked -- that Amazon was in talks with
, the nation's largest retailer, to form an alliance. While some analysts put out reports weighing the implications of such a deal, many put little credence in the rumor, which originated in a London newspaper. They said it appeared to offer few benefits to Wal-Mart. However, an Amazon-Best Buy alliance would make sense for both, says Steve Zrike, an analyst at
Zrike says an alliance between Seattle-based Amazon and an established bricks-and-mortar company would likely be a boon for the online giant. "In terms of having their name out there in front of consumers, that is key," Zrike says. For example, if a deal included a presence for Amazon in Best Buy stores it could help build Amazon's brand and lower its customer acquisition costs, one of its highest expenses.
The deal with Toys R Us includes an in-store presence for Amazon on store fliers, shelf signs and banners. In addition, the Amazon name adorns Toys R Us newspaper inserts and is mentioned in television advertisements. At the same time, the deal has allowed Amazon to ease out of holding toy inventory.
A deal with Best Buy also could allow Amazon to capitalize on Best Buy's relationships with manufacturers, says Zrike, allowing the e-tailer to purchase products at lower costs. One of the
key questions surrounding Amazon's consumer electronics business has been whether the company buys goods from wholesalers at a low enough price to earn a profit.
Best Buy, in turn, would capitalize on Amazon's expertise in running e-commerce Web sites. "It is not their core competency, and it is for Amazon," Zrike says.
Although Amazon doesn't break out sales for its consumer electronics business, it's seen as a way for the company to compensate for slowing growth in its core books business.
Amazon has been happy with its Toys R Us deal. In fact, Amazon's Harrison Miller, the company's vice president for kids and the architect of the Toys R Us deal, was recently promoted to a position in the corporate development department. One of the duties in his new position, which doesn't have a title yet, will be seeking out similar deals.
Amazon has said it will become profitable on a limited basis by the fourth quarter. However, this has done little to quell the controversy surrounding the company's finances. The debate over the health of Amazon's balance sheet, which has polarized Wall Street in recent months, has pitted the view of
analyst Ravi Suria, who contends the company faces series liquidity issues, against the opinion of more bullish analysts like
Henry Blodget, who's more sympathetic to the company's contention that it has plenty of cash to pay its bills and become profitable.
Amazon shares closed Monday down 50 cents, or 4.6%, at $10.50. Best Buy rose $3.03, or 7.4%, to close at $44.