Has Best Buy lost its mojo?

With prices that can't compete, the electronics retailer saw market share crumble in the third quarter.

By Kim Peterson Dec 14, 2010 2:29PM
Credit: (© Gary Malerba/AP)
Caption: Best Buy storeRewind to Black Friday. Everyone was talking about the hot sales at Wal-Mart (WMT), Target (TGT) and Amazon (AMZN). Televisions were at bargain-basement prices, and Kindles and iPads were hot, too.

But Best Buy (BBY) was an afterthought. That's because, lately, Best Buy has become too expensive. Now it's the place you go simply to check out electronics. When you want to buy, you go to Wal-Mart or Target.

This has been a very difficult year for Best Buy, and today's third-quarter report showed just how far the electronics retailer has fallen. Sales and profit were way below what Wall Street was expecting. Inventories were up, and now the stock has tanked, down 16% to $35.10. 

Investors are wringing their hands over what Best Buy's results mean for the economy, for the markets and for the future of retail.

I think it's simpler than that. Best Buy has been outplayed by other stores and is turning into a niche electronics retailer. It's a louder, flashier Radio Shack. As one CNBC watcher observes, it's becoming the Sears (SHLD) of consumer electronics stores. Post continues after video:
Best Buy got killed in TV sales. How could that be, since TVs are one of the hottest holiday presents around? I should clarify that cheap TVs are one of the hottest presents around, and the lower-resolution 720p TVs at discount retailers are so cheap that your checking account will hardly blink.

Best Buy would not, or could not, take its TV prices down to match what Costco (COST), Wal-Mart and Target were doing. It simply couldn't compete.

Another problem for Best Buy was notebook sales -- traditionally a more dependable category. But there's a consumer shift to tablets occurring, and Best Buy suffered as people wait to see the new tablets on the way next year.

Best Buy is also a victim of the economic recovery. Retail sales in general continued to climb in November. People spent more on gas, clothes, books, music and sporting goods. But they spent less on big-ticket items, including cars, furniture and electronics.

Amazon took a bite out of Best Buy sales as well. CNBC's Herb Greenberg reports that growth dropped for Best Buy's online sales in the quarter. Online sales grew at only 7% year over year, down from 15% in the second quarter and 21% in the first quarter.

The biggest red flag for investors was Best Buy's decision to chop its full-year forecast. Now EPS for fiscal 2011 will be between $3.20 and $3.40. Previously, the company had expected $3.55 to $3.70.

Best Buy's competition is encroaching faster than expected, writes R.J. Hottovy at Morningstar. Wal-Mart and Target have vastly improved their electronics selection in recent years, he adds. Shoppers aren't motivated to visit the likes of Best Buy without aggressive pricing -- and Best Buy was not willing this year to be as aggressive as it should have been.

Best Buy "lacks an economic moat," Hottovy added. I like that description. Without that moat, the castle is coming down.

7Comments
Dec 14, 2010 5:48PM
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high prices, lousy service and ridiculous return policies....who needs them

Dec 14, 2010 5:03PM
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I used to be a good customer but as long as Best Buy continues their 15% "restocking fee" they will keep losing customers.
It's going around the net as a warning to potential shoppers now.  As someone that has been burned by the 15%, I'll never go back!

Dec 15, 2010 12:46AM
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Bought a power converter. I could not find the receipt within the 30 days of purchase. BB would not accept a return even for a store credit.

This item does not become obsolete. No reason not to accept it back.

Never will I go back to BB.

Dec 14, 2010 9:45PM
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This is just an indication of how far we have fallen as a capitalist society. Consumers want someone like Best Buy around to answer their questions, someone to call on the phone, someone to assist them. Then those same consumers get in their car and drive to Walmart to make their purchase, where their lucky to not have to ring the product up themselves. Its reflective of the fact that we get most of our products worldwide from a communist, oppressive, polluting country like China. The American consumer wants it all they just do not want to pay for it. Just one step closer to a retail monopoly run by the likes of Walmart.
Jan 17, 2011 8:44AM
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Best Buy workers are what drew me away from the retail chain.  They seem relentless to annoy people when you walk into their stores.  In each an every department you visit, from computers, to cameras, to DVDs, to TV's, you get the "do you need some help" about 100 times.  It feels like they are pushing you to buy and you don't look at the things comfortably.  It doesn't help either that those kids in blue are poorly trained to answer tough electronics questions.  They just want to sell you the most popular and expensive brand in what you are looking for.  Ever seen workers over the age of 35 working the aisles or registers at their stores???  I sure have not which leads me to believe their hiring policy is also questionable.
Dec 28, 2010 2:18AM
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I ordered a DVD and video game from Best Buy online during Black Friday.  Took three weeks to get the video and four for the game.  I also ordered stuff from Amazon.  Took me two-four days depending on the item to get it from them.  I won't shop Best Buy anymore.  I got a satisfaction survey on how my shipping went with Best Buy before the product even arrived.  There lucky I didn't fill it out.  Poor.  
Dec 20, 2010 10:05AM
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I used to spend a lot of $$$ at Worst Buy.  Bought a computer in 2002 and tried to return it.  Return clerk treated me like a criminal.  Store manager was no help, neither was their corporate office.  I have not shopped there since.  Will never go back.
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