Forecast For Best Buy: Worst Is Yet to Come

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http://finance.yahoo.com/banking-budgeting/article/112269/forecast-for-best-buy-worst-yet-to-come

Just two years after its arch rival was knocked out of the ring, Best Buy (NYSE: BBY - News) is itself on the ropes.

he company revealed a problem last December that has left investors scrambling for answers. Even with bankrupt Circuit City out of the picture, the retailer was losing market share, especially in the key television and computing categories. Best Buy shares have since tumbled 21% and now trade at a mere nine times this fiscal year's consensus earnings.Investors shouldn't assume Best Buy simply needs time to recover. Rather, the threats it faces are likely only to worsen. Take Amazon.com (Nasdaq: AMZN - News), whose relentless growth has undercut the raison d'être of specialty retailers. That is true both in books -- where Borders Group recently filed for bankruptcy protection -- and in electronics.
Indeed, Amazon's electronics and nonmedia revenue rose 66% to $18 billion last year, helping it lift market share in different segments. Its share of LCD TV sets, for instance, nearly tripled, to 3.7% at the end of 2010 from 1.3% in 2007, estimates research firm Traqline. Its share of portable audio devices rose to 11% from 4.6% in the same period.

A key to that success is that Amazon beats bricks-and-mortar retailers across the board on average electronics prices, a Wells Fargo study showed. Best Buy, on the other hand, traditionally hasn't tried to compete on price alone but has preferred to highlight its tech-savvy staff and wider selection.
Its selection, at least, probably meant more a few years ago, when manufacturers like Sony (NYSE: SNE - News) sold products to Best Buy but not to nonspecialty retailers. But that has changed. Sony now sells to Costco Wholesale (Nasdaq: COST - News), for instance.
And it has become much easier for consumers to compare prices -- ironically, using applications on the smartphones they can purchase in Best Buy. Shoppers can visit Best Buy stores to examine items before buying them elsewhere. Or, as Greg Melich of research firm ISI Group says, they are using Best Buy as Amazon's "showroom."


Best Buy's market share is still so big -- it accounts for nearly a third of U.S. consumer-electronics sales -- it is reasonable to assume many Best Buy shoppers make decisions primarily based on price.
That helps explain why Best Buy is exploring a switch to consistently competitive prices rather than strategically timed sales.


But history suggests changes in pricing strategies can be problematic. David Schick of Stifel Nicolaus points out that BJ's Wholesale Club (NYSE: BJ - News) decided to lower prices on some items in 2002 to defend market share. The result: Sales at stores open more than a year quickly improved. But gross margins fell for eight straight quarters. BJ's shares also fell more than 70% from April 2002 to April 2003, when rival Costco's fell just 20%. While BJ's stock has recovered somewhat since then, it hasn't caught up with Costco's.
And reducing prices might mean Best Buy has to cut costs, such as for its sales staff. That leaves the question of what a specialty retailer still has to offer.


Best Buy's edge has been apparent when shoppers wanted new technologies like LED TVs, which it sold with more success than rivals. But high hopes for 3-D television have faded, and there is nothing promising on the immediate horizon. Moreover, the major source of must-have electronics is Apple (Nasdaq: AAPL - News), whose own retail-store chain is increasingly a rival even as Best Buy stocks Apple products. Sales at Apple's U.S. stores rose 83% to $2.8 billion in the fourth quarter of 2010, estimates Mr. Melich, making it the third-biggest electronics retailer in the U.S.
Unless a new technology takes hold, the worst of times are likely to come for Best Buy investors.
 
Compete or die. Simple as that. Best Buy doesn't really compete with anyone as far as prices go. I buy everything from Amazon. Plus I hate most of the people that work at Best Buy.
 
Lately Best Buy sucks. I used to go there often and pick up some great deals when I would actually get a 'best buy' on items. Now, they are a joke - coupled with a lackluster in-store selection and a poor customer service staff (at least at the one located near me).

Amazon is about the only place I shop from now, especially since Deep Discount has gone down the tubes lately.

It would be unfortunate if Best Buy goes under, just because it would put a lot of people out of a job. On the other hand, like Circuit City, they'd finally be selling stuff at what it's actually worth during their closing sale.
 
[quote name='hankmecrankme']Compete or die. Simple as that. Best Buy doesn't really compete with anyone as far as prices go. I buy everything from Amazon. Plus I hate most of the people that work at Best Buy.[/QUOTE]


Yep . . exactly the way i feel!!
 
I can't say I am surprised, as most aspects of Best Buy have gone downhill. I cannot think of one decent thing to say about the B&M locations.

My store always found the worst copy of every in-store pick-up item, generally a floating disc, or missing a component like a slip-cover when they are still available on the shelf. They play roulette with the lines, randomly closing the main registers and make purchasing customers intertwine with the returns, pick-ups, and Geek Squad areas. I have received more help from the floating Direct-TV Reps than anybody else in recent memory.

Online did alright one time, recently. A package was lost and they refunded me within hours.

It is quite a contrast. The worst is already here, or so it seems.
 
I only buy stuff from them when I want it that day. Usually that is music or a movie that is on sale. Games unless it it cheaper than amazon I can hold off on as I usually can't play them till the weekend anyway. If the best buy here closes I will end up having to go to american for stuff. If that happens I will go to look at it and get an idea of what I want then order from amazon.
 
Their prices are high. I think that pretty much everyone gets electronics online now from stores like amazon and newegg. They need to get with the times.

At least microcenter is trying to compete with newegg and actually has the lowest processor prices around.
 
They got the undisputed #1 spot from Circuit City's death and just sat back doing nothing to keep customers coming back... take note Gamestop.
 
This is nothing new. They've been on a downward spiral when they got comfortable doing nothing. Their prices are a joke, their "service" is outright laughable and there is no incentive to step foot in there unless you absolutely need something near the day of release. I say near because half the time they don't even have games out when they should.

Personally I haven't been in my local Best Buy in months, and the only reason I did was because someone gave me a gift card. I bought ms points and turned right around and left.
 
[quote name='mtxbass1'] Personally I haven't been in my local Best Buy in months, and the only reason I did was because someone gave me a gift card. I bought ms points and turned right around and left.[/QUOTE]Yeah, I've been sitting on a $20 gift card for Best Buy for quite a while now, hoping to see something I want go on sale at an acceptable price. Starting to think it's never going to happen, and I'll end up just using it on MS points as well.
 
go use your best buy gift card on the "Kindle" gift card
it's an Amazon gc actually, you don't need to spend it on Kindle stuff
 
Best Buy's selection is absolutely terrible, and their prices make it impossible for me to buy stuff from them, particularly when it comes to Blu Rays. They deserve whatever financial ruination they encounter.
 
[quote name='CaoPi']Shoppers can visit Best Buy stores to examine items before buying them elsewhere. Or, as Greg Melich of research firm ISI Group says, they are using Best Buy as Amazon's "showroom."[/QUOTE]
You have no idea how much this rings true in our family.
 
Good riddance. Stores like Kmart are actually working hard to bring in shoppers, and the Amazon juggernaut isn't going away anytime soon. I haven't stepped foot inside of a Best Buy in at least a year.

That being said, there are still ALOT of people who shop there because they don't know any better. That's why Best Buy is even around.

I miss the days when I was a bit younger and the Best Buy weekly ad actually meant something.

Previous poster said it right, "compete or die."
 
It's like they want to pretend Amazon doesn't exist. Since Circuit City died their prices have become very uncompetitive and their coupons have become pretty worthless since they stoped allowing them to be used on sale items. There is almost nothing in the store that cannot be had for cheaper elsewhere(especially from Amazon). It blows my mind that they believe they can succeed in this economy without being more competitive in pricing. IMO, If they are going to succeed again they have to find a way to compete with Amazon's prices.

I think they used to be able to argue that they shouldn't be compared to internet shops because you get the product right away. But, when they first made that argument it would take a while to ship something and you had to pay a fair amount for S&H. Now, shipping is often free, and if you have Amazon prime you can get it to ya the next day for 4 bucks.
 
[quote name='hankmecrankme']Compete or die. Simple as that. Best Buy doesn't really compete with anyone as far as prices go. I buy everything from Amazon. Plus I hate most of the people that work at Best Buy.[/QUOTE]

Yep. Retail stores suck. With Amazon Prime there's just no reason to hassle buying things like games, movies, books, cds etc. locally anymore. It's cheaper and more convenient to order online and get it 2 business days later.
 
[quote name='CaoPi']
And reducing prices might mean Best Buy has to cut costs, such as for its sales staff. [/QUOTE]

I can vouch for this - I have my availability WIDE OPEN and I have a whopping 4.5 hours next week.
4.5 hours in a week. Unbelievable.

I only started working there as a temp gig to help me pay my bills as I moved/settled into my new house back in late October but it's just gotten worse and worse by the day.
Constant nagging to pressure customers into using financing and the "Black Tie Protection Plans" on a daily basis plus the overall laziness/stupidity of most of the stockroom people have made me grow to hate working there.

I'm interviewing for another job this week so hopefully I'll be out of there shorty, but I feel bad for a few of the other sales associates who genuinely want to help customers but get admonished by the managers for not getting them to sign up for financing/protection plans. :(
 
[quote name='Gameboy415']
Constant nagging to pressure customers into using financing and the "Black Tie Protection Plans" on a daily basis ([/QUOTE]

What about their new future proofing...do they make you push that too. BB now gives you the privilege of actually paying them(in advance) a fee to have the right to later sell your stuff back to them within 2 years at a fraction of what you paid(like 20% if its been more than 1.5 yrs). Instead of lowering prices they continue to try and sell these type of add ons to their customers that make the stuff even more expensive.
 
[quote name='Gameboy415']I can vouch for this - I have my availability WIDE OPEN and I have a whopping 4.5 hours next week.
4.5 hours in a week. Unbelievable.[/QUOTE]
Same song and dance I've heard before a family member ultimately quit.

And I have to laugh at the Kmart fighting to attract business comment. One team trialing a coupon system just to be undermined by the incompetence of employees and an outdated POS is not progress. Maybe for the select gamer it is, but the general populace who have families to feed couldn't care less.
 
Even with taxes Amazon has always been the better way for me to go with the exception of TVs, only because I don't want to take a day off/be home to accept a TV delivery. I'd still rather see the TV in person/see the box stock so Best Buy/Wal-Mart would still get my money in TV and appliance sales.

Everything else, especially games, I rather buy on Amazon.

B&M store are less and less needed thanks to Amazon and other online retailers. I usually only go to Grocery Stores, Clothing Stores and Thrift stores like Big Lots for savings. Only reason I hit Target at all is because of their clearance game sections.
 
[quote name='Gameboy415']I can vouch for this - I have my availability WIDE OPEN and I have a whopping 4.5 hours next week.
4.5 hours in a week. Unbelievable.

:([/QUOTE]

I didn't even think this was possible. At least where I work the minimum hours that someone has to be scheduled was 12 hours a week as a part timer. Full time is 28 hours I believe (but it depends on when you were hired old policy was 32 hours). This is Walsmart.
 
[quote name='Monsta Mack']Even with taxes Amazon has always been the better way for me to go with the exception of TVs, only because I don't want to take a day off/be home to accept a TV delivery.
Everything else, especially games, I rather buy on Amazon.
[/quote]

That was moot for me as no way I could fit a big screen in my small car anyway. So still have to be home for delivery (and it cost $60 or something when Amazon usually has free shipping. So next TV I'll probably check out locally and order online unless the store has free delivery.

Only reason I hit Target at all is because of their clearance game sections.
Click to expand...

Only reason I hit Target is for things like shampoo and other toiletries, vitamins, soda and chips etc. Things that are cheaper there than the grocery store. Will occasionally by a cheap blu ray or something when shipping for that kind of stuff.
 
It would be too bad if Best Buy went away. Every once in a while I get the urge to play a game today, even if I have to pay a premium over Amazon. Not something I try to do very often, but it's nice to at least have the option. Without Best Buy, what's the alternative... GameStop? :cold:
 
[quote name='dmaul1114']Target and Wal-Mart aren't going anywhere.[/QUOTE]
Maybe it's a regional thing, but the video game sections in my local Targets and Wal-Marts aren't quite as substantial as Best Buy. Target used to be a lot better before they reorganized their stores a couple years back.
 
I've been shopping at Amazon more since I got free prime for being a student. I love it and haven't been in BestBuy in a couple months.
 
[quote name='Ryuukishi']Maybe it's a regional thing, but the video game sections in my local Targets and Wal-Marts aren't quite as substantial as Best Buy. Target used to be a lot better before they reorganized their stores a couple years back.[/QUOTE]

Its not regional. Target and Walmart both are realizing the money isn't in general merchandise, its in groceries. Low margin but high volume. Why do you think Super Walmarts and Targets are increasing in popularity? 10-15 years ago those type of concept stores were a novelty at best, now they have multiple locations in every major city and people rely on them exclusively for their groceries. Its one stop shop and as space gets used up for all that stuff they don't want to waste their resources on low margin, (comparatively) lower volume products like electronics and entertainment.
 
Best Buy does have a better selection. Moot for me as I pretty much only get the major blockbusters like Mass Effect, Halo, CoD etc. these days and you can find those everywhere if I ever decide to buy locally vs. getting it from Amazon.
 
The profit margin for stuff like TVs and computer are pretty low. They really need you to buy the $50 HDMI cable or $20 usb cable
 
Add me to the people that use it as a show room. That, and to find the item I'm ordering online in the condition I want. I sometimes buy Blu-Ray's there, but that's only because of DMR coupons or having giftcard credit; they sometimes have some good and/or random sales on older games, but for their most part, their prices blow, as does their extremely YMMV clearance.

With Amazon and Target, I wouldn't be that sad to see them go. Oh, and definite lolz at "tech-savy staff." The shit I hear from 99% of the employee's there is completely retarded, or opinion-based (but passed off as fact), and no one at Customer Service knows the store's actual policies, and will go OUT OF THEIR WAY to fight off your business, as many of us here know.
 
[quote name='Jodou']Same song and dance I've heard before a family member ultimately quit.

And I have to laugh at the Kmart fighting to attract business comment. One team trialing a coupon system just to be undermined by the incompetence of employees and an outdated POS is not progress. Maybe for the select gamer it is, but the general populace who have families to feed couldn't care less.[/QUOTE]
:lol: I definitely agree about Kmart. If I've been in one of their stores maybe three times since the 'coupon train' nonsense started it's a miracle. Since Target is a wasteland for me for clearance(cuz the soccer moms buy up shit at 15% off:roll:) Kmart/Sears were my two go to stores for CHEAP games to fuck around with while waiting for price drops on the newer shit.

As for Best Buy possibly being on the way out, I certainly hope this is not true. After all, where will I get my penny guides from then?:rofl: That's the ONLY reason I go into BB anymore, aside from price matching sale prices from other stores.:razz:
 
I rarely buy anything at Best Buy, the prices are high and I have had a lot of problems there. Most recently, there was a laptop advertised on sale. I go the first day of the sale to get it. None are out on the sales floor and the employees try to talk me into a more expensive laptop telling me the one advertised is no good. A lot of people throw around the term bait and switch on CAG but this is one case where the term really described what happened. Or there refusal to honor their own coupons and customer service siding with the store even though they were wrong, not being able to find instore pickup items ordered online and no more massive clearances (like the $1.99 games). I miss Circuit City. Yeah they usually had 1 register open and the store was disorganized but the deals they had made it worth the trouble of shopping there.
 
Basic concerpt: B&M have overhead and more employees.

Remember at least when it comes to electronics, Amazon for the most part just matches other peoples sales. Case in point, Amazon current B1G1 50% off DS games... match based on TRU's sale. Without a competitor, who says Amazon won't become complacent with sales.

[quote name='drktrpr1']Stores like Kmart are actually working hard to bring in shoppers[/quote]

Other products outside Video Games are overpriced in comparison to direct competitors. You will be lucky to find an employee actually in the department you need them to be in. Yes, the coupon train was great but as a whole it is far from "working hard to bring in shoppers" for Kmart. It is essentially only bringing in gamers, which is not the main consumer Kmart is aiming for.
 
I used to actually help people when I worked at Best Buy. I was consistently hassled for not selling more useless accessories and other crap.
 
[quote name='dmaul1114']Only reason I hit Target is for things like shampoo and other toiletries, vitamins, soda and chips etc. Things that are cheaper there than the grocery store. Will occasionally by a cheap blu ray or something when shipping for that kind of stuff.[/QUOTE]

Yeah, Target isn't my first selection for electronics or games, but it is good for a lot of other things.

Best Buy for me has been going downhill since they nerfed their music department. Combine that with the fact that their coupons can't be used on sale items, there has been little reason for me to go there other than to windowshop.

Unfortunate too, since once they go, that's the end of electronic shops for the most part.
 
I am surprised because I thought they were doing well since Circuit City closed. I am not surprised because they have become less and less price competitive over the years, instead focusing on loyalty programs and partnerships, up selling cheap accessories and pushing protection plans, financing and additional services like installation and repairs. It used to be that Best Buy was “the” discount store, back in the day when they had big cd sales, now they’ve tried to rebrand to some sort of high end electronics store during a major recession.

I think once a company starts focusing on a loyalty program, they’ve declared that they no longer want to compete on price. These days, a lot of Best Buy sales focus on additional reward zone points, or reward zone special discounts or pushing people to a higher reward zone tier, rather than actually pricing a product competitively. In the beginning, this strategy worked because the extra rz points were in addition to good sales, but gradually they have phased out the sales and the rz incentives are all that remain. Add in that they’ve stopped allowing combinations with coupons and sale prices, and the deals have become few and far between. A token 10-12% coupon every couple months isn’t enough.

It was interesting what the article said about BJ’s experiment with pricing, because that’s the direction I thought Best Buy needed to go. They need to be more flexible on pricing to bring me into the store more often. I check amazon at least once a day, because I never know what might change in price or go on sale. They remind me about prices in my cart that have increased or decreased in price. These days I know that I can just check the weekly Best Buy ad (at CAG), and if I don’t see anything I don’t need to go to the store or website. I often forget to check the ad, because the deals are few and far between. I’m not so sure Best Buy can compete on price with Amazon though, the overhead for a B&M might keep them from competing. But right now it seems like they aren’t even trying.

My purchase history at online retailers like Amazon vs Best Buy would probably chart pretty consistently with the industry trends. Not too long ago I looked up my order history on Amazon. I was stunned by how little I used the site in 2002-2003, a few to maybe five or six orders, versus the last couple years where I’ve had 30+ orders a year. Similarly I used to get 250 rz points, worth a $5 gift card, at least once a year at Best Buy. I don’t think I accumulated 250 points last year.
 
I have not stepped into a Best Buy since Xmas and I have no plans on going there anytime soon. If I don't get something from Amazon or Newegg, I usually hit K Mart or Target.
 
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