storewanderer wrote: ↑March 1st, 2024, 11:50 pm
I'm shocked they are doing as well as they are based on my observations of their stores and store traffic.
They were over a $50 billion dollar a year company, and are likely to only bring in about $40 billion this year. But earnings will be a few cents per share higher!
There are few reasons to choose Best Buy for electronics like TVs over Costco, Walmart, or Target for the mainstream customer. Costco being higher end, Target midstream, Walmart lower end although their selection has expanded. The main reasons would be to purchase a top of the line model which usually won't benefit the customer unless they make other upgrades, for example if they want an 8K TV that's great but if they have older audio equipment then it's instantly hobbled to a 4K or possibly lower resolution which completely negates the additional expense. Plus need 8K content which is almost impossible to find. For that high end customer who now can't get any knowledgeable help because of the layoffs, they will just get rung up by a clerk who says "nice TV dude" and they will likely return it in a few days because "8K didn't work." They could have sold them thousands of dollars in additional equipment but instead now they have a TV that will be checked and found to be no defect found so it will have to be sold at a markdown and a loss as open box. Or trucked to a Best Buy outlet at a cost. Notice they've increased the outlet store count? It's because they gave up RTV rights unless the items are truly defective which is a small margin boost up front but a huge liability on the back end, especially when you no longer have any knowledgeable service available to frankly prevent the sale of the products to customers who aren't equipped to operate them. So eventually they will have to stop selling the top end models of all the big brands, removing a huge amount of the selection that differentiates them from the rest.
Now they're head to head with Costco on the new lower top tier. The only reason to shop Best Buy over Costco is if you need financing like 24 months no interest. Gosh, haven't interest rates shot through the roof? So the margin loss of retaining the finance customer is also massive now. Meanwhile Costco will at least give you an automatic extended warranty included in the purchase price, while Best Buy wants hundreds of dollars AND has put a CAP on repair or replacement costs! Yes, if your $1000 TV totally died and can't be fixed the CAP may mean you only get a $500 credit towards a new TV AND they could deduct the cost of repairs performed so far from that. It's a warranty that literally isn't worth the paper it's printed on. And only 14 days return policy vs Costco 90 days. And the Costco included warranty is 2 years so if it does actually break you call and they will authorize full repair or comparable model replacement. So would you go to Best Buy or Costco? I think the choice is clear as to what your Best Buy is.
So that leaves them with high overhead without the support of high margin categories like apparel and others to compete with Walmart on low end and Target on mid tier commodity. Both of them will discount the heck out of electronics in those tiers to get traffic in hoping the customer buys other clothing, household goods etc to make up the margin. Best Buy only has a costly warranty or expensive professional installation to compete and the low to mid tier customers don't need or want those services.
So where does this leave Best Buy? As I see it, bleeding customers out to everyone else. You cannot drive through a Costco parking lot at any given moment without seeing at least three big TVs being loaded into SUVs or trucks regardless of neighborhood. How many do you see actually being loaded at Best Buy? I don't see any, and don't tell me that these customers all need delivery (which conveniently Costco, Target and Walmart offer too).
And the same exact story can be told about the appliance business, Best Buy vs Home Depot, Lowe's, Costco etc. There is zero margin in computers, the only prayer of a profit lies in high margin accessories and warranties which again they laid off the people who up sell those items.
That leaves Best Buy to try to add new product lines where they can only offer niche offerings as they lack the space and customer interest. They now have Greenworks battery operated lawn mowers, chainsaws, etc. Nobody wants them from Best Buy. They have Traeger smokers. Peleton exercise equipment. So only one brand from a category which is the polar opposite of the "best selection" strategy that the rest of the store is built on. Isn't going to work.
They're going to self destruct. At least EPS will be good as they wind down to nothing. The CEO and board need to be fired immediately, and Hubert Joly brought back from his retirement job of teaching business school. Or at least the current C-Suite should be forced to take his classes. He saved the company only for this new greed-driven crew of idiots to make sure that it will die another day.
