Has Best Buy lost its mojo?
With prices that can't compete, the electronics retailer saw market share crumble in the third quarter.
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.
high prices, lousy service and ridiculous return policies....who needs them
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!
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.
MORE ON MSN MONEY
Copyright © 2013 Microsoft. All rights reserved.
Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.
The Fed may start tapering in just a few months. Here are a few of the likely winners and losers.
VIDEO ON MSN MONEY
Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.
Contributors include professional investors and journalists affiliated with MSN Money.
Follow us on Twitter @topstocksmsn.