Best Buy Says Tech Sales Has Reached A Low Point

[ClownLoach]

Best Buy should have been the "niche" store for premium products. The old Magnolia program before the 2008 recession felt like it was on the right track for the direction they needed to go to. It was clear already before the 2008 recession that these products were becoming more and more like commodities and more of a throw away type of thing for many entry level products.

I think at this point there isn't much reason for Best Buy anymore.

But Staples and Office Depot are still in business... so who knows how many decades Best Buy may be able to continue along.

The change is digital. Even Audiophile products have changed, and the complications of needing ultra expensive cables and custom installations have given way to "lossless" digital audio files that transmit flawlessly over high speed WiFi. So the fat profits from those $300 Monster Cables that honestly did improve picture and sound in the analog days are gone - if the cable meets the industry standard then the chips on both ends are the same so the picture and sound will always be the same whether it's a simple plastic coated $12 cable or a fancy looking woven loom cover for $100 - it's the best picture possible with that digital protocol or no picture at all. So source of fat profits #1, expensive accessories, is gone.

Wireless means no longer do you need to pay their installer thousands of dollars to run expensive cable through your walls - now you can just plug devices into electricity and everything is over the air. Aside from hanging the TV on the wall which is much easier these days since the TVs weigh 75% less than the original Plasma and LCD sets, there isn't really much left to sell in installation. Source of fat profits #2 is gone.

Finally it's harder to repair digital goods so warranties aren't as profitable. Most smaller chains can't afford a service center so they had to switch to less profitable managed plans like SquareTrade. Source of fat profits #3 is gone.

This is why the specialty stores have mostly disappeared as technology has rendered them obsolete by destroying the profit centers that kept their doors open.

Now for Staples and ODP (their new corporate name), the majority of their income today is corporate sales which is delivered from warehouses. But since they were amongst the first "big box" chains their leases are usually pretty good, similar to what we learned about BB&B. They close the stores that can't get a renewal at low rates, otherwise they keep plugging away since they're paying a quarter of current market rate. Sometimes a greedy fast growing retailer will offer top dollar for their sites which is also a source of profits (Total Wine comes to mind, they love to buy Office Depot sites). Anyway you'd be surprised how much corporate work these stores do as they're basically an outsourcer. Last few years my previous employer wouldn't even tell us to print flyers, we would get an email to watch for a flyer delivery and suddenly a guy from the Staples down the street was delivering a box of flyers to customer service. ODP has taken on the retail supply firm Bunzl and now delivers retail supplies like bags, receipt tape and janitorial supplies to many retail chains. Staples has similar programs after buying Corporate Express. So they can usually afford to keep the box stores open as long as they break even, even though they probably do a fraction of the business from back in the heyday of selling desktop PCs and such. I've heard some once $30M Office Depot stores these days barely break $3M, but even after losing 90% of their historical revenue they can still break even on the bottom line.

[Alpha8472]

That makes so much sense now. The Office Depot near me closed down several years ago and became a Total Wine. I thought that it was strange as there were so many office buildings nearby that the Office Depot would always do good business.

[ClownLoach]

That makes so much sense now. The Office Depot near me closed down several years ago and became a Total Wine. I thought that it was strange as there were so many office buildings nearby that the Office Depot would always do good business.

Total Wine only has 254 stores but they deliver substantial volume - chain average is over $20 million per store and their prices are super low, second to only Costco/Sam's Club who have a fraction of the selection. For a comparison the estimated revenue of Ralphs these days is $15 million per store. And those office supply boxes are half the size of a supermarket, in fact Total Wine has a few test stores that are in even smaller space like a closed Petco in Newport Beach which crams in narrow aisles and tall racks but still manages to drive sales. I would also assume their shrink results are good because of their layout and front end - they deliberately make it hard to exit by forcing all customers through open checklanes only plus must go past a manned customer service desk that surrounds both doors. Thus they aren't subject to being hit by thieves who would load a shopping cart with bottles then run for the doors like they do at supermarkets and drugstores. Stores in rougher areas have armed guards, plus on busy days employ receipt checks and usually have a employee well suited for the job (the biggest, tallest, and scariest looking guy in the store - they probably try to hire at least one ex-bouncer for the job). Their ingress/egress model is a tiny version of the Costco setup.

With that kind of business going, Total Wine can probably afford to sublease a old Office Depot/Max at a premium rate thus making that office supply store worth more to the company dead than alive. I'm sure that they will aggressively pursue many of these closed Bed Bath and Beyond locations as well since they're about the same size.

I've heard it's a great place to work, many of the Managers who left my previous company are there now and seem to be thriving. They send their Store Managers on training trips for several weeks to France and other countries to learn about wines at company expense. They seem to have so far defied the modern "earnings at all costs" cheapskate management philosophies and are willing to fully staff their stores with knowledgeable, trained employees with a high sense of professionalism, dress code, and attention to detail. I just fear that someday they'll be infected with what I'll call the CVS virus and discover the profits that come with greedy labor slashing, lowering of store standards, elimination of training, price increases, and so forth then become a weak shadow of themselves like the once-proud BevMo chain.

[submariner]

Hmm... maybe if they hadn't neutered, then eliminated their rewards program...