Best Buy can't go on like this

The retailer's earnings are even more dismal than Wall Street had feared. Shares tumble 12%.

By Jonathan Berr Nov 20, 2012 12:37PM
Arrow Down Umbrella copyright Photographers Choice RF, SuperStockBest Buy (BBY) better hope that founder Richard Schulze and his private equity partners go through with their plans to buy the embattled consumer electronics retailer, whose future otherwise appears bleak.

The headline on the company's earnings release today says it all: "Best Buy Confirms Significant Decline in Fiscal Third Quarter 2013 Earnings." 

The company reported a net loss of $10 million, or 3 cents per share, compared with profit of $156 million, or 42 cents, a year earlier. Revenue fell to $10.8 billion, as same-store sales, a key retail metric measuring activity at stores open at least a year, fell a staggering 4.3%. Excluding one-time items, profit was 3 cents a share, missing by a long shot the 12-cent average forecast of Wall Street analysts. The revenue figure beat the $10.73 billion consensus forecast.

Shares of Best Buy, which have slumped more than 48% this year, not surprisingly plunged 12% in early trading Tuesday.

CEO Hubert Joly, who was named to the job in August, seems to have a firm grasp on the retailer's many problems which, to his credit, he isn't sugar-coating. In fact, he is quoted in the release as describing the company's financial performance as "clearly unsatisfactory." His candor is no doubt welcome by Best Buy's beleaguered investors.

But the odds of Joly succeeding are slim. In an interview with Bloomberg News, he lamented the fact that Best Buy lacked the connection with consumers that Apple (AAPL) and Amazon (AMZN) seem to enjoy. He also is trying to boost the company's lackluster online sales by vowing to match prices of Amazon and other rivals. It's a risky strategy, but given Best Buy's precarious state, one that Joly has little choice but to follow.

Unfortunately, the retailer is being forced to increasingly compete on price instead of service. There is so much information available to consumers online that many don't need a Best But expert clothed in a blue golf shirt to advise them on what to purchase. Best Buy's stores are also cavernous and often crowded on the weekends, which makes them unpleasant places to shop.  Many of the people that you see in the stores are "show-rooming" -- checking out products in the company's bricks-and-mortar stores that they will later buy online at a much cheaper price. That is a growing problem.

Time is not on Best Buy's side, particularly as it heads into the important holiday season. Wall Street will want to see some signs of improvement, tiny as they may be, or else Joly's job could be in jeopardy. Schulze and his partners will also demand better performance if they are able to finalize their plans to make an offer. If that happens, the founder should keep Joly as CEO because he seems to have a firm grasp on the retailer's problems. All Joly needs is the time -- and money -- to fix them, which is easier said than done.

Jonathan Berr does not own shares of the listed stocks. Follow him on Twitter@jdberr.


 



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123Comments
Nov 20, 2012 3:17PM
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70% of the American economy is based on people buying crap.  Well, Americans are out of money, being laid off and are in massive debt.  We can't buy anymore crap.  This really shouldn't be surprising.
Nov 20, 2012 4:50PM
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The problem with Best Buy, 
is that more often than not, it's NOT THE BEST BUY.

Pretty simple really.
Nov 20, 2012 2:24PM
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Yep...remember last year when Best Buy canceled purchases that were back ordered...

Just before Christmas...Think that crude move is still biting them on the butt...lol

Nov 20, 2012 2:16PM
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The idiot in a blue golf shirt is the "expert"? Lord have mercy!
Nov 20, 2012 4:51PM
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I would rather shop at Best Buy than Radio Shack any day.

Granted, they are not the best. However I have had good experiences with the store. That may not have happened to everyone, but at least it is a lot better than Walmart;s tech department.

Nov 20, 2012 5:25PM
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I walked into Best Buy last X-mas to buy a wireless printer. Found the one I liked. But when I got to the register I was suprised to find out that my charge account there had been cancelled. I never had a payment problem, and had used it o purchase higher dollar items like 'fridges & microwaves. I never recieved a notice my account was being cancelled for any reason. So I was pissed. I walked out. Found the same printer at Staples. I had some reward cash there, so I even saved a few bucks. I could have bought that printer at half a dozen places within a 5-mile radius. I walked into Best Buy first, and never will again. Afterwards I contacted their credit dept. and was just told the account was closed & could not be reopened. No reason, no explaination.
Nov 20, 2012 4:33PM
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Sad to say but unfortunately more troubled companies to surface to the top of the bowl in the near future. 
Nov 20, 2012 4:57PM
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Went to BB to get a CMOS battery for my fathers computer, the sales

associate didn't have a clue, ended up going next door and getting a battery from the Wal-Mart watch department. The sale rep"s either dont have a clue or talk down to you or jump you like a raw peice of meat when you walk into the store. The problems are up and down the entire management chain. I wonder if the store managers get any type of training at all.    

Nov 21, 2012 12:10AM
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BestBuy destroyed BestBuy...The End. Here are the fiscally fatal mistakes that have been made:
1) Silently store by store running off its most productive employees in favor of "cheaper" labor
2) Keeping the corporate porkers: ones responsible for brilliant (moronic) ideas
3) Implementing tracking sheets turning employees into high pressure salespeople like I tried to tell a know it all district manger, "....wrong economic environment to use tracking sheets....you WILL lose as many customers as you make with these..."
4) Internal corruption: promotion through who you know NOT what you know
5) Stupid sales "scripts" every salesperson is required to use on the customer to sell more products/services driving away customers
6) Some put in general manger positions who could not even run a paper route relying on others/store location to prop them up
Who am I??....WAS a "special" employee @ store# 221-558955. To those mangers who thought you knew more than me...you took a company I once loved and you helped destroyed it. I like how there was to be an internal investigation of Mr.Dunn...like the Mafia performing its own internal investigation based upon rumors of organized crime LOL!

Nov 20, 2012 6:04PM
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Should change the name to Best Bye. 

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Best Buy is going down like the US economy

 

Pretty much they are both doomed. And the sooner they collapse the sooner people can rebuild and get on with their lives.

 

 

Nov 20, 2012 10:38PM
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"Unfortunately, the retailer is being forced to increasingly compete on price instead of service."

Best Buy had service?  I must have missed that era.
Nov 20, 2012 7:14PM
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If you think Joly has a firm grasp on the retailers problems you are mistaken. The problems in that organization run much deeper than price matching Amazon. No one in the organization really wants BBY to fight with Amazon for market share, but it is exactly what they should be doing, but proactively, not in reaction to Amazon. The management team from corporate to districts to stores are a group of old school retail merchandisers with very few new ideas about how to serve customers properly in a highly competitive retail environment, and that attitude is pervasive to the point that mass replacements would be necessary and that just isn't feasible. The operating environment an structure is archaic and even with the money would be very difficult to turn in time. Their buying strategies don't work either as can best be demonstrated by the fact that rarely, from a pure price perspective is Best Buy the price leader, and when they are the limited quantity item is usually gone too quickly. Their Geek Squad services are way over priced for the level of thechnical expertise coming from the majority of the Geeks in the squad. They fail miserably in packaging valuable services with value items that could postion them better in the market place, and they have no clue how to sell and market to the higher end clients who will spend more $$ on more margin rich products and services. In short, they don't really have a firm operations, sales, marketing and services strategy, the react and knee jerk themselves in circles. WHy haven't they explored home theater and family room/living room furniture as viable product lines to boost traffic, sales and margins? This is a huge strategic miss on their part. Why aren't they offering digital download stations for music and movies and other relevant digital media as opposed to maintaining the square footage it takes to display all the CD's, DVD's and other soonto be outdated media types. They could do it and still offer hard copies for those who want them at an extra cost. This would boost device sales, media sales and prop up profits, as well as position them as a technology leader instead of paying lip service to connectivity and leadership. The last points are --If Richard Schulze is successful in his bid, will he be a change agent? If he takes on the debt to buy the stock, will Best Buy be able to perform to the levels necessary to service and retire that debt? Doubtful, and that means for too many people, the end is near.
Nov 20, 2012 7:30PM
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Has anybody been inside a BB lately?  You go in there and there is nothing but sorry-axx sales people on the sales floor.  The employees don't have a clue on the products they sell and a lot of them lack presentation.  Why bother going to BB, when you check the product out physically and then order it on Amazon on your smart phone.  Hello........
Nov 20, 2012 7:06PM
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What they need to do is pay their employees enough to keep good people. I haven't been in a Best Buy in years mostly because of poor service by their underpaid staff.
Nov 20, 2012 5:12PM
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I tried to order from an email special ..never could get on the web site...a lot of big empty yellow buildings in the future.
Nov 20, 2012 10:27PM
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Best buy sells everything at retail price. Who wants to spend $30 for a dvd that came out 10 years ago. They need to have good sales to bring in more customers.
Nov 20, 2012 10:53PM
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 My family and I drove 80 miles to the Best Buy in Salem, Oregon. We were shopping for 2 televisions and 2 computers.. We had 10, 000 dollars in cash to spend. We selected the 4 items we wanted to purchase for near seven thousand dollars. Well, they wanted us to purchase the items on credit. We explained we did not want or desire to purchase them on credit. We have cash and offered to purchase the items if they would consider a discount for the fee the bank charges for using credit. No deal. Se we left.

Best Buy offered a refurbished HP laptop computer for a good price, but they did not offer and refused to offer a warranty other than 90 days parts. No warranty no deal.

The Deal of the Day: Try to purchase more than one of small low cost items; for example, flash drives. I wanted three but they would only sell one per order.

In addition, I have traveled the 80 mile trip 4 times and the item they advertised for sale was not available. Best Buy, I think not.

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