Best Buy (BBY) is the market dominator in traditional big box electronics stores, competing, on the ground, against H.H. Gregg (HGG), Target (TGT), Wal-Mart (WMT), Costco (COST) and other warehouse stores in and local companies in home entertainment and many of the same names, plus Staples (SPLS), Office Depot (ODP) and a company called Apple (AAPL) in computing, phones and tablets.
I like Best Buy stores – although I did buy that flat panel at H.H. Gregg, the store was next to my favorite sushi place for lunch, and therein lies the ultimate problem – you can buy traditional products you may want everywhere and anywhere.
That is the problem in the terrestrial world. What about the online world? For Best Buy the commonality of products in the real world means people can shop for them – comfortably – online.
Simply put, online retailers – and to my mind that includes Apple retail stores, they are integrated seamless into the Apple brand – are killing terrestrial retailers all around and especially on consumer electronics and computing. Look at a product in a store, buy it online. A recent survey by ChangeWave Research (part of the 451 Group) measured spending plans for the late holiday spending period and the first two months of 2012.
Here is how things came in compared to results from the same survey one year ago.
This pretty much says it all.
Analysts still argue this is a temporary phenomenon; there is always a next big thing that drives consumers to stores to kick the tires and purchase something.
There is nothing on the horizon.
Televisions? Three D is a bust and prices are falling faster than Republican presidential candidates.
Computers? Prices are falling and online retailers are recording sales increases in the double digits.
What about the new wave of ultra books, super think laptops? A big yawn and too cheap to boost Best Buy’s or any retailer’s margins or sales.
Tablets? Go to the Apple store or buy them online.
Yes, Best Buy has a web site and it is heavily used. But due to price pressure from their online competitors, not to mention they have to collect sales tax and Amazon does not, and they charge for delivery and often Amazon does not, well, they are losing market share every second.
Best Buy is not alone – there is a secular shift to online retailing, from electronics to pet medicine – no kidding – I buy everything online, I go to shopping malls to watch what people are buying and from whom, not to spend money (outside of the food court).
Although I am talking about this past holiday season and 2012, Best Buy’s last quarter was not pretty either. Revenues rose only 2% in Q3 and earnings were down 13%. The stock was crushed, has since popped up, driven by value investors not paying close attention to reality and because of the better than expected showing for retail sales in December.
You can expect more of the same this quarter – and next quarter – and for all of 2012 – and 2013 as well. And beyond 2013. The game is over.
What can management do to ward off these trends and reverse this forecast?
They have a lot of leases on a lot of stores. The economy is still very weak. New household formation is weak and the improvement is coming from people like my sons – people spending money online, watching TV on their tablets and computers and Xboxes.
Some say that Best Buy has become the “Show Room” for Amazon and other online retailers. Not a good time to be long BBY.
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