Why isn't Best Buy doing better?
Posted
Jul 20 2009, 01:47 PM
by
Kim Peterson
Rating:
Best Buy (BBY) is the last man standing. The last remaining national electronics chain, now that Circuit City and others are gone.
But is that a good thing?
The New York Times looks at the peculiar circumstances of Best Buy, a company whose future is still a question mark despite complete domination of the brick-and-mortar electronics retailing business. If you need a flat-screen television today, chances are you'll stop by (if there's a Best Buy in your town).
So why isn't Best Buy more respected by analysts? Let's look at the reasons:
The economy. Expensive electronics items aren't flying off the shelves in a recession. In fact, shipments of electronics are estimated to drop 7.7% this year, the Times reports. Best Buy's sales in its most recent quarter seem to mirror that decline.
Down sales for CDs and DVDs. Sales of music and movies were what brought people into Best Buy stores, and in many locations, those discs received very prominent center space. But people aren't buying physical discs anymore -- Apple (AAPL) surpassed Best Buy last year as the No. 1 music retailer in the country -- and Best Buy gave music and movies prime real estate for too long.
Slim profit margins. The electronics business has historically had small profit margins, and Best Buy's is around 5%, the Times reports.
Amazon. Best Buy's competition is now outside of the traditional electronics business. General retailers like Amazon (AMZN), Costco (COST) and Wal-Mart (WMT) have moved in, often beating Best Buy on prices and kicking in extras like free shipping and no tax.
No "must have." We've all got our iPods and Wiis. There is no hot item that people are flocking to electronics stores to get. You could argue that the iPhone has attained that "it" status, and though Best Buy stores do sell iPhones, Apple has done a good job of corralling iPhone sales to its own stores or AT&T (T) locations.
So what's Best Buy to do? Milk its one advantage -- a staff that knows electronics -- as best it can. It's moving the CDs and DVDs to the side and turning its center store space into a giant help desk. It's training employees to be more helpful when it comes to figuring out your computer, selling warranties or setting up a new phone.
Tough to tell if that approach will fly. That's going to hurt at the payroll level, requiring more training and employees. Best Buy is setting precedent here -- there aren't really any retail models like this out there, except perhaps the Genius Bar at Apple stores, which is an apples-to-oranges comparison.
But one of the nails in Circuit City's coffin was its decision to lay off 3,400 knowledgeable employees and hire low-paid replacements. At least Best Buy isn't going that route.
Will Best Buy survive? I don't think so, at least not in its current incarnation. There isn't much room for a niche electronics store when the Internet and other competitors continually eat away at the business.
Image credit: Ildar Sagdejev, GNU free documentation license
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