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How retailers can fight back against Amazon: Staples co-founder

Friday, 17 Jan 2014 | 2:06 PM ET
Amazon margins not sustainable: Pro
Friday, 17 Jan 2014 | 10:31 AM ET
Thomas Stemberg, Highland Consumer Fund managing general partner, discusses the concerns surrounding the retail sector and provides his outlook for Best Buy and Amazon.

The co-founder and former chief executive of Staples has some harsh news for retailers who aren't reaching for rock-bottom prices: "You have to go down there and fight [Amazon] in the trenches."

That means taking a long-game approach and suffering through quarters of bad profit margins, similar to what happened with Best Buy during the most recent holiday season, Staples co-founder Thomas Stemberg told CNBC on Friday. Best Buy executives blamed the disappointing sales numbers from the important end-of-year shopping season on intense discounting among rivals.

(Read more: Cramer: Why Best Buy needs a 'big reset')

A pedestrian walks past a Diesel S.p.A., store in New York.
Jin Lee | Bloomberg | Getty Images
A pedestrian walks past a Diesel S.p.A., store in New York.

"It was a very short Christmas season that dramatically affected results," Stemberg said on "Squawk on the Street."

Stemberg sees a buying opportunity in Best Buy, whose stock took a beating Thursday. He predicts that lawmakers will soon take away Amazon's chief advantage—declining to charge sales tax in 31 states. CEOs who don't compete through price cutting will soon be former CEOs, he said.

"By being price-competitive for now and taking their lumps, [Best Buy] is doing the right thing in the long run," Stemberg said. "You can't think the American consumer is going to let you [charge] 10 to 15 percent more at your store versus Amazon."

(Read more: Whither retail? December weakness bleeds into 2014)

Stemberg, however, doesn't think Amazon can sustain operating without turning a profit for much longer.

"The big issue here is that Amazon is selling products at margins that are not sustainable," Stemberg said. "And for the longest period of time, they've been able to convince Wall Street'Trust us, we'll make money some day.' At some point in time, there's a day of reckoning."

—By CNBC's Jeff Morganteen. Follow him on Twitter at @jmorganteen and get the latest stories from "Squawk on the Street." Reuters contributed to this report.

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