Are Best Buy's prices too low?

Staying competitive on price in a tough sector will means thinner margins for the electronics retailer, which could worry investors.

By MSN Money Partner Nov 20, 2013 11:33AM

Best Buy (BBY) CEO Hubert Joly has been the toast of Wall Street this year, bringing the consumer electronics retailer back from oblivion and causing its stock to skyrocket more than 200%.

 

Its shares, however, nosedived 11% Tuesday to close at $38.78 as investors worried about Joly's plans to hike spending ahead of the crucial holiday season while also slashing prices -- which will result in smaller profit margins.

 

This shouldn’t have been a surprise given that consumer electronics retailing is cutthroat and includes ferocious competitors like Amazon (AMZN).    

 

(Post continues after video.)

 

When stocks such as Best Buy are pushed to dizzying heights, the slightest negative sentiment can bring them down hard, as was proven on Tuesday. Wall Street ignored the better-than-expected quarterly results and first gain in same-store sales in three years, and instead chose to focus on potentially leaner profits.

 

Even with this tumble, Best Buy is a top performer in the S&P 500 ($INX) for 2013. And it could have even more gas in its tank. The stock trades at a 16% discount to its average 52-week price target.

 

Though analysts are divided on Best Buy’s future, they credit Joly with making the chain more competitive by slashing costs and matching prices offered by rivals. But Best Buy’s road ahead remains arduous, especially as it heads into a hit-or-miss holiday season.

 

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80Comments
Nov 20, 2013 12:14PM
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HAHA nice try MSN.  Looks like you're pandering to Best Buy for their advertising dollars, eh?  Funny, but I think that we, as buyers, know that Best Buy's pricing is at least as high as everyone else.  Take video games as an example.  Best Buy's pricing on ALL video games across the board, is much higher.  You can find better prices at Target and Amazon every single day. 
Nov 20, 2013 12:50PM
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Best Buy has one of the highest markups in the retail business!

I worked there for years, The only thing worth buying are Computers, Tv's, Appliences.  Anything accessory or not a major appliance is marked up 100's to 1000's of %. 

A HDMI cable you buy from Best buy 40-60$ 
I was getting that cable for 3$ through employee discount. 


Best Buy is a rip off!  All they care about is pushing their employees to sell sell sell when their employees make no commission "the phone reps do thou". 
Nov 20, 2013 1:38PM
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too low???? Are you people smoking crack? Best Buy is not competing in that area worth a crap. They need to wise up and figure out the only thing they got going for them is if you want something that day. Otherwise who the hell would shop there and pay higher prices for zip???
Nov 20, 2013 3:42PM
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HDMI Cable @ Best buy $29.99+

HMDI Cable @ Amazon/Newegg $3.99

 

To answer your question MSN, No

 

'Nuff said.

Nov 20, 2013 12:48PM
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BestBuy prices too low?? Far from it since Amazon 99% of the time beats them on what little "exact" models/products BestBuy sells. Of course, I could drive to my local BestBuy and out of the graciousness of their hearts IF it's the same exact model number (rarity) they will match Amazon/etc. prices? SO, all I have to do is burn my gas, wear on my car, and fight traffic to get SAME deal I can from comfort of my pc chair off online retailers? On two occasions I called Amazon customer service letting them know "BestBuy" was going to price match what I was interested in. Their reply: "Mr. H____ we will give you an additional $10.00 off.."


BestBuy (catchy name far from truth) can not compete with online retailers; due to the large overhead on its building and its labor force  (pushy kid in blue) trying to sell you every known accessory for what you may purchase while reciting a memorized/scripted sales pitch. Please keep in mind a multitude of BestBuy "leaders/MVPs" also led Ultimate Electronics and Circuit City...right into bankruptcy. After BestBuy folds that is going to look quite impressive on a resume/interview. "Well I am a great leader with management experience...uhhh yeah I led Circuit City...Ultimate Electronics too...and  I was an outstanding leader at BestBuy ."  In translation it means: "I am a three time loser wanting to financially pillage and rape your company next."


Retail itself is a dirty, and cutthroat business; especially at BestBuy. Promotions are routinely based upon who you know, and not what you know; however if you have knowledge of the "right" kind it may override the usual norm of promotion. General managers often surround themselves with kids who are of no threat while getting rid of any employee who has the knowledge and talent to challenge them. It is not called "Retail Hell" as a joke.


As we approach the holiday season notice all the positive propaganda concerning BestBuy? I know I better be careful, since BestBuy is one of Microsoft's "bread n butter companies" that sell Windows based devices/Microsoft products; hence this upbeat article. It is to manipulate people into still shopping with them, so you can be sold an almost worthless Black Tie Protection plan that is used 1/10 of the time LOL. After recently viewing bestbuy.com I noticed a pattern. They are not even selling the latest technology, but it appears as if they are just trying to "dump" their current inventory.


I would be extremely cautious of so called BestBuy Black Friday deals. Usually, they consist of tvs, etc. that did not sell well throughout the year. In addition, they are infamous for special ordering lower quality notebooks, etc. for Black Friday blow out limited quantity sales. Furthermore, like it has already been posted beware of those great prices on HDMI cables at your local BestBuy. There is an old saying, "if it sounds too good to be true...it probably isn't."


The brick n mortar Black Friday chaos is almost upon us and I am so glad Amazon/other online retailers rolled out early Black Friday deals!  ALL my shopping is done and I did it from comfort of my home without even having to leave my driveway. I truly got the "bestbuys."


Who am I you may ask? How do I know so much about BestBuy internal "affairs?" I am former "special" employee 558955 turned author. I am near completion of my unauthorized book, which involved legal consultations to insure I have not gone beyond any legal limits. If you desire to discover how BestBuy really works you may find my soon to be proofread/published/released book quite interesting, "Behind The Doors."
















Nov 20, 2013 1:26PM
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Even Target has better deals than best buy, for the PS4 launch, for actually most consoles, they are doing a buy two games get one free.  That's sixty bucks usually for most games, so you get 3 games at about 39 bucks or so.  Best Buy actually has been less competitive in pricing than the other big box stores.
Nov 20, 2013 2:47PM
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Worst Buy's prices are too HIGH not too low!
Nov 20, 2013 1:30PM
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and martha stewart is dennis rodman in drag
Nov 20, 2013 1:44PM
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I don't really agree with this article. I think Best Buy deals are far more expensive than what you see on Amazon. My husband and I are avid Amazon shoppers. I have yet to save money through Best Buy to be honest. Amazon is the way to go and many people are realizing that, including the Amazon Prime members who get their product in the mail within 2 days with free shipping. Most people are more concious on how much their spending at this time thus their willing to wait just 2 days before getting that cardboard box in the mail.

Nov 20, 2013 3:13PM
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Best Buy...rarely is the best buy you can get.

Their geek squad didn't even get an install correct when I bought a computer there about 10 years ago.

I learned how to do it all myself shortly after that...just so I could. 

Also self-taught to repair my own computer software,hardware,and everything else possible.

Nov 20, 2013 2:05PM
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Best Buy can go ahead and fail,  as far as I am concerned.
They have it coming.
Don't invest in a sinking ship,  people.

Nov 20, 2013 3:26PM
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Are Best Buy's prices too low?  Of course not.
Nov 20, 2013 5:26PM
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Even if their prices were "too low", so is their service.  Did you ever return something to the store to get your money back?
Nov 20, 2013 3:20PM
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Best Buy had a better deal on a 55" TV than Costco. Costco was $20.00 cheaper to but the TV but I had to call a number they gave me for delivery. I called the number and they told me for delivery, haul away my old TV, and install the new TV they wanted $149.00. But Best Buy did all that for free.
They delivered on time and hooked me up no questions asked. So was Costco really cheaper for the TV? Not for me. I couldn't get it in my car anyway if I wanted to take it. I never tried Amazon so I have no idea if they would match Best Buy? I never had a problem with anything I bought from Best Buy. I got my computers from them and they were more than competitive.
Nov 20, 2013 3:47PM
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best buy is a ripoff. i bought a computer there and paid $400 for an extended warranty and when it broke 7 times they wouldn't honor their warranty. i wouldn't go to best buy if they were giving away free 60 inch tv's.
Nov 20, 2013 4:34PM
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Take a look at it's return policy, 15 days normal customers than 30 days and 45 days for different type of members.  Cashiers at check out usually confused on what to tell customers, I was told 30 days during check out and try to return a wireless keyboard after 19 days and was told too bad.  On a 15 days return policy, who will shop at Best Buy for Holiday Gifts.  They are not looking for return customers, I will never shop there.  Short term sales result mean nothing. 
Nov 20, 2013 3:39PM
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Just a thought. Amazon is where we shop frequently however in the recent past we purchased a phone system with 5 remotes for $149.00 at another web merchant. Amazon listed the price for same system at $70.00 more. We purchased 2 pairs of workout sneakers at another web merchant for $13.00 less per pair than Amazon. Last, we purchased a telescope from Costco on their web site for $159.00 and Amazon was $219.00 for same manufacturer and model. The foregoing are only some examples however we still price shop and Amazon gets about 70% of our web sales. If you purchase on the web, it may save you money to really compare as you would retail shopping.
Nov 20, 2013 4:24PM
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Was in a Best Buy last weekend. Big problem for Best Buy is consumers have no money for higher margin products. Heck I saw a stack of notebooks for $299 that were selling. I doubt Best Buy made much on each one. Or the PC maker for that matter. But I saw very little interest in Surface, $1000 plus laptops or desktops and the Apple Mac display was not even busy. Only two products will help Best Buy, PS/4 and Xbox One. If either one does not sell well, I think technology stores will suffer. WalMart, Sams, Costco are killing on TV's. Lot's will shop online for smaller stuff. Frankly, I am surprised Best Buy has not fallen like Circuit City. With Windows 8 being a lackluster OS its not going to spur on PC sales. Tablets are a bright spot as their are plenty. Camera's are done, might as well call them the next Kodak, Polaroid moment. CD's are old school and what's left? Coffee makers and washers and dryers? Yea right.
Nov 20, 2013 2:02PM
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NO, prices aren't too low...but they are now very competitive and superior to outlets they didn't use to be.  3 years ago, you couldn't possibly buy a computer or tv from Best Buy cheaper (and same quality) than Wal-Mart, Target or K-Mart....


NOW, the quality at those locations isn't normally on par, and when it is, it appears Best Buy has as good or better pricing, and financing and better service and support....The only catch I've seen is that you can't layaway at Best Buy, and at SOME of the Big Box retailers, you can.

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It's easier to take a product back to a brick and mortar store if something goes wrong (think Xbox).  Also, the extended warrantees tend to make your purchases easier to return as well.  Those two things can offset the slightly higher price.  Returning something to Amazon requires creating an RMA, printing a shipping label, getting a box, and shipping that box which usually involves driving to a shipping facility.  I can see the pros and cons of both, but there is definitely something to se said about keeping it local.
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