Whistling in the dark

I'm not shilling for Amazon or any other successful online retailer here. My point is much more basic. Amazon neither invented nor appropriated its basic strategies from Best Buy or anyone else. It simply does what consumers want. Best Buy does what would be most convenient for the company regarding what consumers, and then it crosses its fingers and prays. That's not a strategy -- or not a winning strategy, in any case, now that retail consumers aren't stuck with the store closest to home.

There's no magic to retailing "hot" products and doing so at a profit. Efficient inventory and distribution, managing customer relationships for the long term, competitive pricing, pre- and post-sales support for technically complex items: These are the most basic elements of competitive advantage for a retailer that actually wants to stay in business, now but in the past as well. Most of what Amazon does right has nothing at all to do with technology or the Internet.

Best Buy, on the other hand, is futilely focused on the mathematics of market share. It's groping with questionable expansion in Europe and China, and with services such as its recently acquired Geek Squad subsidiary. (It also bought Napster in 2008, then sold it to Rhapsody late last year for an undisclosed amount.)

What else has the company got? Management, at least, still believes it has competitive advantages -- advantages that make it attractive even to shareholders. According to the company's most recent annual report:

"We believe our dedicated and knowledgeable people, store and online experience, broad product assortment, distinct store formats and brand marketing strategies differentiate us from our competitors by positioning our stores and Web sites as the preferred destination for new technology and entertainment products in a fun and informative shopping environment."

There's just one problem. Not one word of that, at least in my experience, is true. Their "people" are not knowledgeable; they are annoying. The store "format" is entirely generic and perhaps a little confusing. The stores and websites are not "preferred destinations" -- they are destinations, at best, of inertia, or in the case of exclusives, destinations of the only resort. The "shopping environment" is the opposite of fun and informative. It's depressing and humiliating, as in "I can't believe I had to go to Best Buy to get this."

What you're hearing is the sound of a once-leading retailer whistling in the dark. The only question is whether Best Buy management and investors know that, or whether it's obvious only to consumers. My guess is that they don't "believe" a word of this, but don't want to admit it to themselves. (It's clear from the Christmas debacle that they wouldn't feel obliged to admit it to anyone else.)

Best Buy is living in the corporate equivalent of what psychologists call a state of denial. In business, that's usually the first step in a failure that ends with a spectacular collapse.

Gradually, then suddenly.

Stocks mentioned in this article: Best Buy (BBY, news), Apple (AAPL, news)and Amazon.com (AMZN, news).

He is also the author of three books, including the Bloomberg Businessweek and New York Times business best-seller "Unleashing the Killer App."