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 21, 2012 12:10AM
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They are no longer competative price wise Walmart,Sam's,Amazon,New Egg,and other online retailers are kicking their butts.
Nov 20, 2012 11:40PM
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Over the years I have purchased many items at Best Buy.... especially computers.  However, the last time I needed an office computer, I made at least 5 trips to 2 different Best Buys trying to gain information as to which models were best suited to my needs and programs.  And every time I went to their stores ... I was left to wander around the Computer dept without anyone even making an attempt to help me, let alone answer questions. My sons had similar experiences in the past when attempting to buy their laptops. In fact I had encouraged both my sons to purchase from Best Buy rather than online because they could ask questions about their concerns.  
Unfortunately ... this experience a year ago finally made me change my opinion.  I got tired of seeing employees hovering in corners and pretending to be doing something so they wouldn't have to exert the effort to assist in a purchase over $1000. Since this happened on multiple occasions in different stores, I realized it just wasn't an off day or a particular bad employee ... it was poor training by Corporate.  How could they not notice customers constantly walking around computers, waiting for help ... and then just leaving?  What kind of company would not develop methods to make sure customers were being helped ... and that no customer was left stranded without being approached within 5 minutes - even if it to tell them someone will be with them in a moment. It is profoundly disrespectful to busy customers to not even attempt to help them when making such a complex purchase.  ANYWAY ... I gave up and went over to Office Depot, where someone helped me within minutes and made a real effort to answer my unique questions.  Went back a few days later ... got a different employee who was also very good ... in fact he answered questions no one had been able to answer in years...and solved many of my ongoing problems. I ended up buying a desktop with confidence, assorted software and maintenance ... basically doubling my purchase price, but I was getting services and software I really needed - and felt comfortable getting it because trained people could give me educated answers for problems I was having.  It has been 1 1/2 years since my purchase ... and ended up with a product that was even better than I would have anticipated.  I stopped back at the same store a year after I got my computer, the same guy was there and recognized me ... and even volunteered some extra services I wouldn't have known about otherwise. It was a completely different experience that Best Buy.  I also went to another Office Depot to get my son a backpack ... and yet another employee approached me as soon as I walked in the door and to my surprise was able to find the unique backpack I wanted, and he was able to give me detailed information as to the features of that particular brand.  Again, I left with a $100 backpack and very impressed with the training and professionalism their employees received. It was great not having to spend 30 minutes standing around waiting for someone half-hearted to assist me. 
Hey - Best Buy ... you have lost a considerable amount of business ... just from our family alone because of poorly trained staff despite my repeated efforts to give your store multiple chances.  More professional training is very fixable issue and doesn't cost that much ... 
Nov 20, 2012 11:23PM
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good best buy should go out of business  they are over priced  time to go like circuit city  move over best buy  there is  a new sheriff in town   amazon
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.

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 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 10:18PM
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Like FDR did 30+ years ago, we need laws on how big business does business, like product support for X number years. The most decimated part of the work force is the repair services. Though prices for items may have gone down a little, very few items bought today are repairable and if repairable parts are not available. Canada and most of Europe have laws that if you manufacture and or sell a product there you have to make it serviceable and parts available for a number of years depending on what it is. They can't sell all support rights to another Company. We need consumer protections for the products we buy.

Nov 20, 2012 8:21PM
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Couldn't happen to a better company. Last time I was in Best Buy, told the salesperson, who was also a manager, how much I wanted to spend. He then tried to up sell me into something I had no need for by telling me I could get a Best Buy credit card. I just turned around and walked out. Haven't set foot in one of their stores for like 3 years now.
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 7:19PM
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THIS IS GONNA BE OBAMACARE! ALL YOU LIBERAL IDIOTS! HOPE YOUR THE FIRST HIS DEATH PANEL DENY SERVICE!

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 7:12PM
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What about The Upgrade Place???  30 years of getting it right.
Nov 20, 2012 7:09PM
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Best Buy knowledge about the products they sell leaves a lot to be desired. Bought a brand new GoPro Hero3 for my granddaughter. Didn't know that a memory card didn't come with it. My daughter went to Best Buy, told them what I just bought and that I needed a memory card. The Best Buy sales rep. didn't know that the new GoPro Hero3 takes a different card than previous models. My daughter tried to explain, but not knowing much about it herself deferred to the 'expert' knowledge. Anyway...to make a long story short...my daughter came home with the wrong card. After another almost 40 miles one way trip, she discovered that Best Buy didn't carry that card. Two trips to Best Buy and disappointed both times. My granddaughter didn't get the memory card for her GoPro so she couldn't use it on her ski trip.

 

Needless to say....I'm not vey happy with Best Buy.

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 6:40PM
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Best Buy employees are as dumb as dirt.
Nov 20, 2012 6:04PM
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Should change the name to Best Bye. 

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