Best Buy Responds to Net Drop

by Parks Associates | Sep. 15, 2011

Best Buy Co. recently lost investors due to signs that their big-box strategy is failing to capture cost-conscious shoppers who are shifting more of their spending to online rivals. The electronics chain reported a 30% drop in quarterly profit and saw its stock decline after sales at its U.S. stores, open at least 14 month, dropped for the fifth-consecutive quarter. Its shares, which reached their lowest level since December 2008 in Tuesday trading, fell 6.5% to $23.35. While Best Buy claimed it gained market share in smartphones and tablets, those gains fell short of offsetting declines in sales of televisions and computers.

Best Buy also cut its full-year earnings forecast, for fear tight consumer spending trends will continue through the holiday season. Investors also appear to be losing confidence in what they believe is a slow response by management to a growing crisis. Executives earlier this year set plans to cut the company's big-box square footage by 10% over the next five years as leases expire, but company critics feel the retailer should close underperforming stores faster.

Best Buy became the dominant electronics retailer in America through oversized stores that carried a broad assortment of music and movies, televisions and computers. Today, online competitors now offer much greater assortments, not to mention the statisctics that show movie and music sales dwindling, due to the rise of digital downloads. Best Buy has responded by enhancing its online assortment by more than 20,000 extra items this year, and introducing a Best Buy Mobile, a much smaller store focused on selling smartphones inside malls. But Best Buy's signature stores are still struggling to adapt to the changes in the electronics market and are faced with the reality that consumers are also purchasing online from competitors such as Amazon.

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Tags: connected CE

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