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Best Buy Closing 50 US Stores After $1.7B Quarterly Loss

Best Buy reported a fourth quarter loss of $1.7 billion, which results in the big-box retailer closing 50 U.S. stores and cutting $800 million in costs by fiscal 2015.


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After announcing a $1.7 billion loss for its fiscal fourth quarter that ended March 3, 2012, Best Buy says it plans to close 50 of its big-box stores in the United States and cut $800 million in costs by fiscal 2015.

According to the Associated Press (AP), the performance compares to a $651 million profit the same time the year before and was an improvement over the same quarter last year.

Best Buy, which says the loss is partly due to restructuring charges, will open 100 small Best Buy Mobile outlets throughout the U.S. Best Buy says sales of TVs, digital cameras and video game consoles have declined, while sales of tablets, smartphones and e-readers have increased.

Best Buy, which is trying to avoid the fate of former rival Circuit City that went out of business in 2009, saw revenue rise 3 percent to $16.08 billion, but it missed Wall Street’s $17.18 billion estimate. Revenue at stores open at least a year slipped 2.4 percent. But it was a smaller drop than a year earlier when the company reported a 4.7 percent decline, according to the AP.

Best Buy says it will change its employee compensation model to revolve around customer service and business goals.

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"In order to help make technology work for every one of our customers and transform our business as the consumer electronics industry continues to evolve, we are taking major actions to improve our operating performance," says Best Buy CEO Brian J. Dunn. "As part of our multi-channel strategy, we intend to strengthen our portfolio of store formats and footprints - closing some big box stores, modifying others to our enhanced Connected Store format, and adding Best Buy Mobile stand-alone locations - all to provide a better shopping environment for our customers across multiple channels while increasing points of presence, and to improve performance and profitability."

Best Buy lost $1.23 billion for the entire year, compared with a profit of $1.28 billion the prior year.

According to the AP, Best Buy expects to reduce about $250 million of its costs in fiscal 2013 with fiscal 2013 revenue of $50 billion to $51 billion.

“The firm is taking incremental steps to address its strategic challenges,” Goldman Sachs analyst Matthew Fassler tells the AP. “That said, the soft close to the quarter, and subdued sales guidance, suggest that competitive pressure may be drifting into market share as well as margin, with Apple stores and Amazon.com the two most likely culprits.”




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Article Topics

News · Best Buy · Big-box Retailers · All topics

About the Author

Steve Crowe, Web Editor
Steve is an editor for cepro.com. He graduated from Emerson College with a B.A. in Journalism. He joined the CE Pro staff in 2008. Steve is also a freelance sports writer for The Boston Globe and other various publications.

14 Comments (displayed in order by date/time)

Posted by mhudzinski  on  03/29  at  04:14 PM

An entire generation of buyers, essentially everyone under the age of about 35, uses showrooms to experience products and then goes to online sources to buy them for the lowest possible price.  Best Buy is certainly not shining star when it comes to knowledgeable salespeople, but we are going to watch all major retail establishments like Best Buy, not to mention thousands of independent stores, go away slowly over the next few years unless manufacturers get serious about mandatory pricing levels that allow their dealers to make a profit.  I see a future where all products are sold in the Apple model where there is a set price regardless of where it comes from, and the best place to experience the products are in their own stores.

Posted by Chad  on  03/29  at  07:03 PM

Tick. Tick. Tick…..

Posted by Just Dont Get It  on  03/30  at  06:38 AM

I continue to be amazed at how much people just don’t seem to get it.  A product is only worth as much as the customer is willing to pay for it and not a penny more.  If someone walks into a Best Buy or other retailer or showroom, hears/sees a demo, they set a price in their head of what that experience is worth.  Right or wrong, that is as much as they are going to pay.  If the store (or dealer) cannot meet that price, they are going to look else where.  Just because a manufacturer or retailer says the speakers/tv etc. cost $X, does not mean that is what the customer values it at.  Retailers and dealers alike all complain about online sources, and people shopping for a better price.  When was the last time any of you did not go looking for a better price for something you wanted?  And what price did you pay?  The price you thought was fair to you for the experience and value the item brought you.  Regardless of what the sticker said.

Posted by paulcunningham  on  03/30  at  06:50 AM

All products are not as popular as Apple’s, and certainly not enough to profitably open stores or “experience centers” in any markets except for the obviously large ones like NYC or LA.

If the only reason for a customer to buy something from you is because you have exclusive access to a product they want, you’re pretty weak. Products purchased online or at Best Buy aren’t going to install and service themselves, and an overall system isn’t going to design itself either.

Anyone can go to a hardware store (physical or online) and buy a bunch of lumber, nails, drywall and doors for dirt cheap; yet people still hire carpenters every day and I don’t hear them crying that they can’t make a profit because Grip-Rite doesn’t have a MAP policy.

Posted by Luis  on  03/30  at  07:39 AM

If all vendors stuck to MAP we would all be ok but they dont so this is why stores close there is no profit . Amazon will one day have to charge TAX then we may have a different ball game until then they hold a big market share.

Posted by Steve J  on  03/30  at  07:56 AM

Those retailers that “get it” will remain in business, and those that don’t, won’t be here.  It’s just Darwin’s principle of business.  The photography business went through this about 20 years ago when large mail-order New York stores were offering cheaper prices than the local camera shops.  What happened is that few good local camera shop remain, but those that do changed their business model and cut their prices to be competitive.  People will buy local if the local retailer is price competitive, even if they are slightly higher then the on-line stores as long as they can get good sales help and good customer service.  Another good example is Tiger Direct.  They bought the bankrupt Compusa and turned those stores into a very cost-competitive retail chain.  Their on-line store is well integrated with their brick and mortar stores, and I would rather go to one of the Compusa (or Tiger Direct) stores than get an item on-line.  Their help is knowledgeable and their return policy is great.  I have had no trouble bringing back DOA components.  I believe Microcenter also has the same business model, and they are doing quite well also.

As far as Best Buy is concerned, I have found their prices to be quite high, their sales help to be clueless, and their return policies and customer service to be terrible.  They are the last people I would choose to do business with.

Posted by mhudzinski  on  03/30  at  08:13 AM

The buyers sense of what price a product is worth is based on their experience of what it can be had for, not some number that they already have in mind.  Sure, they may have a budget they think makes sense, but that is a number that most intelligent people have landed on based on their experience of what they think they want and what that generally costs.  If the consistent experience was that the average price was higher, then they might still stick to their budget and get a lesser set, but at least the store that spent the time and effort educating them, setting up the products so they could experience them, and warehousing the product so they could take it home with them could afford to keep the doors open.

The idea that all products are not as popular as Apple and that independent stores could not be opened by manufacturers doesn’t hold water for me.  Far more people own TV’s than iPhones, and the amount of profit dollars is far higher- assuming the same model as Apple where the price is set at a level that they can make money.

The argument that what we do is equivalent to what a carpenter does is laughable.  The basics of framing don’t change, lumber and drywall and screws are not completely different than they were a decade ago, the nails you use to hold framing together don’t fail because the studs are the wrong brand and there are compatibility issues.

Posted by paulcunningham  on  03/30  at  08:38 AM

I know right! I was just thinking about how well my local Gateway computer store is doing when I was last in there… oh wait.

You’re missing my point. Any knucklehead can buy a Sony TV and hook up an XBOX to it with HDMI and play some games. Any knucklehead can buy a few boards and build a table or a bookshelf. Or buy from IKEA where it’s mostly done for you, easy to set up and offers little customization (see Sonos).

People hire carpenters because they can’t build a house or beautiful millwork by themselves. They can purchase all the materials, even GREAT materials, practically anywhere. Likewise for a proper home theater, distributed AV, or control system. Best of luck putting it together (or buying the right materials in the first place) without a competent professional’s help.

This has been covered so many times on this site already I don’t understand why we’re still talking about it. If you stay afloat based on the margins you make on big-ticket hardware alone, you’re just biding your time until you shut your doors.

Posted by jbrown  on  03/30  at  12:37 PM

@ “Just Dont Get It” You’re right, you really don’t get it. The guy on the internet, with no showroom, one employee and no inventory or displays also has no overhead. So of course he can sell everything cheaper. Best buy has to pay more rent, more employees and actually keep inventory. A person doesn’t walk into a store knowing how much a Sony XBR TV should cost unless he saw some warehouse on the interweb selling it for that.

It is ludicrous to expect Best Buy to be able to stay in business with the current model. And it’s not Best Buy’s fault. All the big retailers are going to go out of business and the small guys who manage to stay alive are going to have to start charging a “cover charge” just to walk in the door. They will do this so that if you want to use their showroom as your own personal comparison site before you buy a TV online because you save $50, then at least they will get paid for the service they are providing you, which the internet warehouse is not.

Jason Brown
http://www.asktheadvisors.com

Posted by 39 Cent Stamp  on  03/31  at  06:51 PM

People can put any price on something that they want… that doesn’t mean the manufacturers are going to meet it. The reason people price shop online is because they are allowed to. This behavior can be changed over night if the manufacturers would put a stop to it. Start cutting off dealers who break the rules and eventually it will end. Apple successfully maintains msrp on all their products. The idea that no one else is able to do this is ridiculous. Part of their popularity is due to the fact that they actually turn enough profit to R&D products properly and create things that people want.

Hiring a hair dresser or eating at a restaurant or calling a custom installer is 100% about letting someone else do it because the customer A.Cant. B.Doesn’t want to. Business owners set their price and clients decide whether they want to pay it. Period.

The “AV Guy” just so happens to be in the hardware sales and the installation business all at the same time. Just like some carpenters supply windows or flooring or cabinets. Everyone runs their company different. The company i work for hasn’t sold a TV or Blu-ray player in 5 years. We sell everything else at MSRP.

If a customer called up and wanted us to install what he already bought we would typically pass on the project. The exception would be someone whos original installer sold all the hardware but wasn’t able to complete the installation. These are the guys who discount hardware. That event starts the ball rolling towards disaster because it causes them to not be able to hire train or keep talent. Had they charged MSRP their profit margin would have been high enough to hire a programmer who could have helped them complete the installation.

Posted by DocHolliday  on  04/10  at  08:42 AM

It’s easy to see why this is happening. Big box retailers (Walmart being the exception) just really can’t compete with online retailers, for several reasons. Online retailers don’t need nearly as much physical space, don’t need nearly as much staff, and thus don’t have nearly as much overhead. Additionally, they sell at razor-thin profit margins (Amazon went for years without turning a profit), AND they subsidize their retail revenue with ad revenue. Meanwhile, big box retailers are buying ads, along with all the other overhead they have that online retailers don’t.

Posted by geoskd  on  04/10  at  09:09 AM

mhudzinski,

It is actually against the law for anyone to try any kind of price controls more advanced than MSRP. Its called price-fixing and it is a violation of anti-trust laws in most of the civilized world. Apple maintains prices because they don’t use wholesale distribution channels. Most of their product, they sell through their own brick-and-mortar stores, or through their website. Everyone else who sells their products does so at very thin margins, and apple doesn’t care. Notice very few retailers carry apple computers (margins are too low), but everyone has ipods. The reason is that the IPOD is a draw, and the retailer makes their money, not on the ipod, but the accessories… Apple plays fair, but the only reason it works for apple is because they have the must-have product. if they didn’t, their business model wouldn’t work. Just look at how well apple did before the ipod. Their business model was the same, but they didn’t have the killer product, and the company almost sank… If apple looses the product edge, their business model will be like a concrete donkey, dragging them to the bottom once again.

Posted by Mark Nagle  on  04/10  at  09:18 PM

Geoskd, Explain Bose then, which has OK margins and still has consistent sell prices across various avenues. Dell also. Explain why Best buy will whore out samsung TVs all day long at what I would assume next to no profit, but an Elite tv and speakers they are charging top dollar for. I guess its a loss leader, but there lies the problem. They don’t understand that purchasers seem to be ok with driving all over town or spend hours of their time surfing the web to take advantage of all the loss leaders that NO retailer is selling much profitable product. This creates another problem for us in that after they have bought all this “on sale” crap it often isn’t compatible with each other or at least collectively delivers inferior results.

I don’t see why it is against the law. It is the prerogative of the manufacturer to maintain the image and integrity of the product. Who is it hurting?

Posted by Basil  on  05/22  at  12:25 PM

I just purchased a 70” quattron TV at the local Visions Electronics (Canada) store for $2400,Best Buy wanted over $3000 for the same model.They have more problems than just the online shopping obviously.

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