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 10:16AM
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 "show-rooming" is just another name for window shopping. That isn't what is killing their sales; Best Buy's failed sales methodology is. The Best Buy shopping experience is genuinely undesirable and unpleasant. And Best Buy tracks you. If you know what you want, it is usually out of stock at Best Buy.
The only necessary in-store shopping is for consumables. If you are a retailer of hard goods, wake up and smell the roses. 
Money is in so short of supply (because of federal fiscal negligence), people don't walk around looking for something to spend their disposable dollars on (aka, shopping) anymore. Since the same crap is sold everywhere and none of the foreign plastic junk is serviceable, price is the sole threshold decision for proletariat shoppers.
If a store selling consumables is not on my driving path, is not easily accessible with parking, is not fast in and fast out, I don't go there. Few, if any stores, are worth spending the extra time, gas and parking expense to drive to and shop at. If I want to interact with infantile idiots (the average sales clerk), I'll call my Congressman, not shop at Best Buy.
Nov 21, 2012 10:14AM
Nov 21, 2012 10:13AM
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Best Buy needs to provide a better shopping experience. Knowledgeable, friendly, helpful employees would be a start. 

The experience at a Best Buy is awful. I can never find anyone to help. The only people that ever come up to ask if I need anything are DirectTV salespeople soliciting their satellite service. Which is incredibly annoying. I'm here to look at a new computer, not completely rework my cable at home. Every time I go to a Best Buy, I'm usually accosted by at least two people soliciting DirectTV to me, while actual employees who can help me with what I'm actually shopping for are nowhere to be found. 
Nov 21, 2012 9:58AM
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I would have shopped at Best Buy over th years if they had not made returns and exchanges so grueling and difficult. Would be willing to pay a little more than online shopping if exchanges and returns were not so hard and time consuming. They planned it that way, so I only shopped there for items that I knew up front that I would not return. I can't be the only person that figured that out, and Best Buy created that customer service monster. Have compassion for the employees that will lose their jobs but poor customer service wont survive in retail. 

Nov 21, 2012 9:52AM
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Its sad to see what's become of this company with its bad customer service, forget about the pricing and there product selection they don't acknowledged that we are there. Plus whats with the long waiting when you know what you want but the product is locked up and you have to hunt an employee down. There not enough employees and they all looked uptight and frustrated and i probably can't blame them cause they seem overwhelmed and are probably under paid. I will take take my business elsewhere and too bad the management team for this company didnt react quicker and sooner. 
Nov 21, 2012 9:43AM
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and on another not there so called tech support is a joke they don't hire real techs they sent you stuff out and charge you an arm and a leg
 
Nov 21, 2012 9:40AM
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i work for a computer company any what we see all the time with best buy is that there so called comp service or there $500 black tie warranty witch does not cover anything is a joke we have customers come in all the time upset with best buy that they say they wont fix there comp even though they have the warranty with it  i hope they close and we get all there business


Nov 21, 2012 9:29AM
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Ordered some XBOX games online for pick-up but when to pick them up I had to wait for the order wasn't  ready yet. The order was stuck at corporate. Just about right. I had to coma back later after the wasted my time and gas. IF you guys at BB are reading make  the process faster, no reason why and order can be processed in a few minutes. Now thats service! 
Nov 21, 2012 9:11AM
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Thank you internet. Most companies products BB sells have no online price protection for brick and mortar retailers. Operating stores with employees is SO expensive, compared to internet sales warehouses that don't stock product and order direct from the manufacturer and have it dropped shipped to the consumer. It's no wonder to me why they can't compete. Costco seems to be the only diversified company with the best retailer sense. Our local BB stores have incorporated furniture stores into their stores to help pay rent and give consumers more 'home enhancement' choices.
Nov 21, 2012 8:57AM
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maybe if they got rid of all the do nothing rude lackluster employees in thier stores people might start coming back
Nov 21, 2012 8:45AM
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Here is the problem Best Buy. I will give you free advice! LOWER YOUR PRICES!!!! See that was simple enough. While your doors are slowly closing, your prices remain the highest in the market. Why would I buy a TV from you when I can go a block down the street to Wal-Mart and purchase the same TV for $200 cheaper? Why would I buy a flash drive for $50 when I can get it on Amazon for $15? Its simple math here. Stop stuffing your pockets with cash while my pockets are a little tighter now. There ya go. I just saved your business!

Nov 21, 2012 8:13AM
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Bestbuy need to get the idea that "Cable sign up deals" and "cellphone sales" are not going to save them.  To be honest they need to go backwards a little and start to sell things that people cannot get online.  i.e. Appliances for one would be a huge boost to them, most of the bestbuy stores now do not even carry appliances (only a few flagship stores do) they need to expand on this.  Home Depot and Lowes make a Huge killing because they have no real competition in this market.  Also if they got into more of a co-op with manufacturers on televisions and other "home entertainment" items like they used to have, they would have NO issues from websites like amazon, they could easily undercut the prices of Amazon.com through these partnerships.  But Bestbuy will not do this, they are shooting themselves in the foot


Nov 21, 2012 7:29AM
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Extremely poor customer service is what caused them to go down.  It took me over a month to get them to honor a warranty they sold me.  Recently I called them to ask about service on TV , but warranty ran out few months ago. They wouldn't even give me the name of a local repairman. After the sale they want nothing to do with you.  Now I want nothing to do with them either. GOOD RIDDENS.
Nov 21, 2012 7:02AM
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their policy of wanting a DL for an exchange & taking security code off CCards is why I no longer shop there
Nov 21, 2012 3:11AM
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I recently had a horrible shopping experience at a local Best Buy.  I was literally bombarded by approximately 20 employees, all attired in company shirts bearing various logos, as I approached the cell phone area.  Sharks on commission each working for a company other than Best Buy, ATT, Verizon, etc, everyone was there!  How can a shopper make a good choice on a product when sweaty guys are sliding all over the place???  I tried to fill out a complaint form at their customer service desk, they didn't have any!!!  Not a surprise, what service?  The attitude was even worse.  I expect them to go under, very soon indeed~
Nov 21, 2012 12:58AM
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The last time I made a purchase at Best Buy was a year ago and I swore then that I would never return to their stores.  What should have taken me 5-10  minutes tops turned into forty minutes.  All I wanted was a Kindle Fire.  I had  researched it and knew that it was for me.  All the clerk had to do was to unlock the cabinet and I would go to the register and be on my way.  Oh no, she had to put my name on the list on her clip board to speak to another clerk.  I knew right away that it was just a ploy to get me to listen to the sales pitch for the extended warranty contract.  After twenty-five minutes of waiting, I was correct.  It then took the clerk another ten minutes to figure out how to write up the sale and get the computer to accept.

 

Never again, Worst Buy!  May you go the way of the Dodo Bird!

Nov 21, 2012 12:58AM
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They hard sell so many extras, it takes forever to buy anything there!
Nov 21, 2012 12:11AM
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Every time I go and need help the people in the blue golf shirts are too busy talking to each other to help me so I leave and go buy elsewhere.
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!

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