Best_Buy_Sales-300x183This seems to fit the New Frugal American Consumer. Save money. Outfit your house for cheap or free entertainment. Buy good stuff that will last a while.  Selling short.

All true – but electronics, once selected, are commodities – you can buy a model of something anywhere. No exclusives – shop the retail store, get the advice and model number, then go from being Frugal to downright cheap.

One of the flyers I just received touting Black Friday sales focused on consumer electronics – televisions, DVD players, video games and the like. Nothing new was there – except the prices. The non-sale prices. They were breathtakingly low.

Cheap is everywhere.

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I first noticed the breaking prices a couple of weeks ago – for LED and LCD televisions at COSTCO. I hustled over to Best Buy and then checked both the Best Buy website and Amazon.

Sure enough, prices have fallen like a rock especially for televisions. Conversations with people on the floor indicate – and this is anecdotal – there is no buzz – 3D television is a joke n one wants to hear about – and what people want is “larger” for “cheaper.” DVD players now cost less than downloading a couple of series on iTunes and the loaded ones, offering WiFi capability and streaming of Netflix and cooking you pancakes on Sunday cost but a few dollars more.

While this may seem like bad news for big electronics manufacturers, few of them get investors’ attention anyway and I do not see Sony or Samsung or Hitachi as tradable because of this trend. But Best Buy (BBY) is – tradable – selling short to the downside. Lower prices mean lower margins and lower profits. Nothing complicated about that.

Costco_Electronics-300x223But Best Buy is facing some other problems, not of its own making.  One is called online shopping in the form of Amazon (AMZN). The other is warehouse shopping and that is Costco (COST). Combine lower cost competition with the trend to lower prices and you not only have falling margins you have a loss of market share.

I love shopping at Best Buy and with the recession the quality of their sales people has increased in the stores I visit in Washington DC. And during my most recent visits most of these sales people – even on a Saturday in a store serving the best performing regional economy in the country – were standing around, waiting to be asked something by customers who were not there. That tells me my thought on their loss of market share is pretty on target.

Customers can go to a Best Buy or H.H. Gregg (HGG) or Sears (SHLD) – uhh, why go to Sears for any reason? – to look at products and get advice. And Best Buy has very cheap products as I said.

But you can find the same products elsewhere at a lower net cost. Go find a model you like, price it on Amazon.  No taxes – and for a thousand dollar or two thousand dollar or even a four hundred dollar item that is real money. More and more large items on Amazon are covered as part of their Prime Service – free shipping, free streamed television shows and movies, free this and that for $79 a year. By a $1,500 item that qualifies for Prime and the avoided tax may pay the annual fee and more.

This micro level behavior seems to be escaping many on Wall Street who argue Best Buy is a “value.” Some of their arguments are well put – Best Buy is very well managed at the operational level, they are being held victim to a lack of new products in the channel and that will change, falling prices and reduced consumer demand due to a weak and now fading economy will rebound with the economy in 2012. Sure, right.

Prices are going lower in the face of weak and, next year, weakening demand. The yen cannot stay at these highs forever and while most electronic products are made outside of Japan – none are made here – the Chinese will devalue the yuan as the European slowdown and then the US slowdown take hold.

Credit Suisse forecast last week that export growth from China will grow less than 6% in the coming years, down from serious double digits, and since this would cause great problems in China, the first thing those paragons of authoritarian masters of obfuscation and lying will do is devalue their currency – quietly, indirectly – to keep export growth as strong as possible.

And pricing is important for obvious reasons – falling prices mean falling margins for any retailer and these outfits are being managed to the bone.

Sell_Short-200x300Market share is falling as New Frugal people – like me – are also doing their utmost to get the best price, including lying to the nice sales person and saying “I will be back with my wife tomorrow.”

If you are looking at selling short, ignore the ignorant saying Best Buy is a value, the stock is a value trap.

Ditto for HH Gregg a smallish competitor to Best Buy. If you like selling short, put it on your list, Santa is not going to be kind to them and 2012 is going to be downright ugly.

If you want to go long, think about BBY’s and HGG’s lower cost, lower price competitors – COSTCO (COST) and Amazon (AMZN).

Both stocks have pulled back in recent days. Costco is clicking in all cylinders – and this is before holiday spending season. They posted nine percent comparables in the last quarter – sales growth that is. Jim Sinegal, the founder and departing CEO of COSTCO (he is leaving because he may be a bit tired, he is 76), was recently quoted as saying on what’s his name’s show Mad Money.

“I think home entertainment is going to be very hot.”

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