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.


 



123Comments
Nov 20, 2012 5:59PM
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Sure, let all these places go down the drain. What are you consumers going to do when the internet fails.
Nov 20, 2012 5:54PM
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I'm just pissed I didn't budge on my price to buy stock options. I tried a couple days to buy some bearish option spreads but the price just wouldn't get to my comfort level and I eventually gave up a week or two ago. I'd be sitting really nice if I had just given in and paid the little extra.
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 5:20PM
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Well then just close already. You don't have a deal in the whole store.
Nov 20, 2012 5:17PM
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The retail concept is antiquated - a dinosaur. Best Buy is a brontosaurus. Someday archeologists will unearth flatbed shopping carts and marvel at the fact they didn't decompose.
Nov 20, 2012 5:14PM
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go to best buy only if your technologicly retarded to get facts on items your looking at...then go buy it somewhere else cause target is generally cheaper then wal-mart and best buy on all those kind of things but the people at walmart are techno retards so get info at best buy but dont buy there cause youll pay atleast 15-20% more on anything in their stores
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 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 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 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 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 4:29PM
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Stores like Crutchfield or Abt are such a better place to shop than Best Buy.
I have 2 Best Buy stores within 15 min but I travel 40 min to shop at Abt. Their employees are so much more knowledgeable and customer service is amazing compared to Best Buy.
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.
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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 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!
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