Best Buy Says Tech Sales Has Reached A Low Point

[Alpha8472]

Sales of computers, appliances, tablets, and mobile phones is down. Perhaps people just don't want to spend money on items that they don't need. There is no reason to upgrade.

However, there is a slight increase in sales on gaming.

Best Buy is closing 20 to 30 large format stores, remodel 8 to its "experience" format, and increase Outlet stores from 19 to 25.

https://chainstoreage.com/best-buy-tops ... ech-demand

[ClownLoach]

Sales of computers, appliances, tablets, and mobile phones is down. Perhaps people just don't want to spend money on items that they don't need. There is no reason to upgrade.

However, there is a slight increase in sales on gaming.

Best Buy is closing 20 to 30 large format stores, remodel 8 to its "experience" format, and increase Outlet stores from 19 to 25.

https://chainstoreage.com/best-buy-tops ... ech-demand

I don't actually believe this one bit. Claiming the electronics business is cyclical is frankly cynical. But there aren't any other national electronics chains left that you can compare results with so Best Buy can make up whatever excuses they want for their results. Meanwhile their earnings per share are obscenely high because they have slashed their wages, eliminated full time employees, closed stores, tightened return policies, culled locations forcing their customers to drive further, and eliminated their best and most tenured salespeople. Kinda the same thing Circuit City did and we know how well that turned out. Best Buy says their sales are going to be negative comp -4.5 to -6% but nothing at all about the outcome of basically eliminating any and all service levels in the stores while maintaining the worst return policy in the electronics industry. Their earnings are going to be over $6 a share while Walmart is at $5.19. I'm willing to bet that their return rates alone are responsible for the entire negative comp especially when they don't have anyone left besides near minimum wage kids trying to convince you to buy the $4000 8K OLED TV instead of the $599 QLED 4K that was in the ad.

The only real good reason left to shop a store like Best Buy is financing, and with interest rates going through the roof and banks tightening approvals coupled with inept, inexperienced staff with zero sales experience they're going to be lucky if they "only" comp down 6%. And their sales of critical profit drivers like accessories, installation services, and warranties will plummet thereby wiping out all of the savings from sacking the top paid salespeople.

Oh, did I mention that this remodel to the "Experience" format is basically converting the store to a Circuit City clone, with a third of the sales floor reduced to create a warehouse and pickup counter? You buy at registers scattered around the store and take your receipt to the counter where they get the box out of the back and hand it to you? And it takes them most of a year to get this remodel done? Their Tustin CA store was closed almost a year for this remodel. They just set up a table across the front doors and operated as online pickup only for a limited assortment. I can't imagine how much money they lost being closed for what amounted to converting to a concrete floor and painting the ceiling black (aside from the warehouse which is just drywall). Yes it's an electronics store and that does require lots of electrical outlets everywhere but they could have pre-run the wiring overhead during overnight work for months before an actual remodel, thus allowing for the wire to be dropped to the new or moved gondolas and hooked up all in one night. (It worked for Circuit City remodels, I should know because I ran them). Maybe they should save some time money and move into smaller, former Circuit City buildings if they're still available since they've suddenly embraced the concept.

Sounds like the classic case of cost cutting your way out of business. Short term they're going to deliver a few more quarters of insanely high earnings but then the bottom will fall out as negative comps deleverage the whole organization and they realize there isn't anything left to cut. Maybe the next attempt to resurrect the zombie Circuit City and CompUSA brands will be successful because these guys seem to be missing out on the party elsewhere.

I can't get in the front doors of any Costco without dodging multiple flatbeds with massive 80+ inch TVs on them as they can't sell them fast enough. The upgrade cycle the BBY clowns say isn't happening is in full force as TV prices are so great that people are upgrading every unit in their house to make their own movie theater room. I'm pretty sure the majority of units going out the door at Costco right now are 86" screens.

Best Buy is laboring under the mistaken belief that being the "last man standing" in their industry means their survival is guaranteed. I'm sure the folks at Bed Bath and Beyond and Toys R Us might have some words to say about that. Best Buy is ready to take their rightful place amongst their ranks.

[Alpha8472]

I totally agree that Best Buy is mismanaged. Costco definitely is selling electronics like crazy. There are huge TVs for only a few hundred dollars. Why would anyone buy those expensive ones from Best Buy?

Best Buy could turn themselves around and actually run a decent electronics store, but upper management is clueless. The days of Best Buy are numbered.

[veteran+]

And don't get me started on the Geek Squad!

Everytime they touch my electronics it is a nightmare.

NEVER again...............I'm done with them.

And their customer service in store and head office? One of the worst in retail.

[BillyGr]

I totally agree that Best Buy is mismanaged. Costco definitely is selling electronics like crazy. There are huge TVs for only a few hundred dollars. Why would anyone buy those expensive ones from Best Buy?

Well, in this area (as an example) Costco could sell them for $1 and people still wouldn't buy them from that store, since they don't have any stores (yet) in the area.

Not to say that other places are not also cheaper than Best Buy, just that any given chain may not be available in some area(s)

[babs]

What Costco and Sam's do is skim off the core.of the market, leaving crumbs for companies like Best Buy. They sell high volume TVs that move at great prices while leaving niche or slower selling items for Best Buy which they often markup a crazy amount so their margins look great but the top line number suffers. Costco has probably inflicted more pain in more retailers than anyone else.

[storewanderer]

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.

[mjhale]

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.

In larger metro areas and specifically in affluent areas there is a market for higher to high end home electronics. Not everyone wants the middle of the road mass produced stuff that Costco, etc sell high volumes of. The thing is the group of people who want items like that are not enough to support a store the size and scope of Best Buy. Perhaps the model needs to go back to the small to mid size specialty home electronics and appliance store with trained and knowledgeable staff who has incentive to provide excellent service to the customer. Call it Magnolia Home or something similar since Best Buy owns the name. Leave the low to middle mass, price sensitive stuff to other retailers that already function in that high volume arena. I think we have finally gone past the desire for huge big box home electronics stores.

[buckguy]

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.

In larger metro areas and specifically in affluent areas there is a market for higher to high end home electronics. Not everyone wants the middle of the road mass produced stuff that Costco, etc sell high volumes of. The thing is the group of people who want items like that are not enough to support a store the size and scope of Best Buy. Perhaps the model needs to go back to the small to mid size specialty home electronics and appliance store with trained and knowledgeable staff who has incentive to provide excellent service to the customer. Call it Magnolia Home or something similar since Best Buy owns the name. Leave the low to middle mass, price sensitive stuff to other retailers that already function in that high volume arena. I think we have finally gone past the desire for huge big box home electronics stores.

My guess is that specialty electronics has shrunk to the point of being too small a niche for many brick and mortar retailers, even if they can provide more knowledgeable service or a broader range. There used to be more in the way of high end home entertainment operators---one offs and small local chains. They often started out as audiophile retailers. There was one near where I worked in Rockville and the place had no customers on a weekday--that store also had a location in Virginia and both closed before COVID. The Audiocraft chain in Cleveland, which has been a round for decades, is down to one store and has broadened their range to include more mainstream brands and things like security systems. B&H, which sells across price points in everything electronic, soldiers on but conducts most of their business online despite the big store in Manhattan. They seem to have inherited the niche that used to be filled by J&R.

When I bought a tv last year I wound up buying from Best Buy specifically because they had more of the highly rated models than Costco, which only sold a limited number of models---for each manufacturer, they only carried 1 or sometimes 2 models in a limited number of screen sizes. I had to buy a tv for someone else recently and again the selection was better at Best Buy. My guess is that they can only pare down what they sell so much before they lose whatever appeal they have now. Their service has always been variable, regardless of the location and and that combined with the horrible reputation of Geek Squad are probably big parts of their problems.

[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.

In larger metro areas and specifically in affluent areas there is a market for higher to high end home electronics. Not everyone wants the middle of the road mass produced stuff that Costco, etc sell high volumes of. The thing is the group of people who want items like that are not enough to support a store the size and scope of Best Buy. Perhaps the model needs to go back to the small to mid size specialty home electronics and appliance store with trained and knowledgeable staff who has incentive to provide excellent service to the customer. Call it Magnolia Home or something similar since Best Buy owns the name. Leave the low to middle mass, price sensitive stuff to other retailers that already function in that high volume arena. I think we have finally gone past the desire for huge big box home electronics stores.

My guess is that specialty electronics has shrunk to the point of being too small a niche for many brick and mortar retailers, even if they can provide more knowledgeable service or a broader range. There used to be more in the way of high end home entertainment operators---one offs and small local chains. They often started out as audiophile retailers. There was one near where I worked in Rockville and the place had no customers on a weekday--that store also had a location in Virginia and both closed before COVID. The Audiocraft chain in Cleveland, which has been a round for decades, is down to one store and has broadened their range to include more mainstream brands and things like security systems. B&H, which sells across price points in everything electronic, soldiers on but conducts most of their business online despite the big store in Manhattan. They seem to have inherited the niche that used to be filled by J&R.

When I bought a tv last year I wound up buying from Best Buy specifically because they had more of the highly rated models than Costco, which only sold a limited number of models---for each manufacturer, they only carried 1 or sometimes 2 models in a limited number of screen sizes. I had to buy a tv for someone else recently and again the selection was better at Best Buy. My guess is that they can only pare down what they sell so much before they lose whatever appeal they have now. Their service has always been variable, regardless of the location and and that combined with the horrible reputation of Geek Squad are probably big parts of their problems.

First, Best Buy has eliminated the staff that actually understands the specialty electronics aspect - component audio instead of a "ez one plug in soundbar" and such. If Samsung has 6 tiers of TVs they'll carry them all, but the reality is that the majority of the sales are in tiers 1 and 3 - the lowest end and the middle "most bang for your buck" range. I've spent long enough in the industry to know that the tiers 4 and 5 raise the price substantially without real justification on most product lines - they do things like add an extra HDMI port or a better remote control to what's otherwise the same tier 3 TV. And the reality is that when flat panel TVs first came out you could really see the difference in quality from cheapo no name to top brand, but now it's very hard to discern the difference since the panels are commodities now and the same screen is inside multiple brands so only the label, interface, and cabinet is different but same "guts" inside.

And the "Tier 6 Future Tech" level like the 8K OLED that's less than half an inch thick for a 86" screen has the average sales of a Bentley or a Ferrari, many times these chains sell less of the ultra high end model than they have stores - as in they have 50 stores that are getting one on display (which will have to sell as an open box at a discount later) and the warehouse has 40 units. In the entire lifespan before the next model comes out 40 get sold, which means one in five stores didn't sell one at all in the best case, and then the 50 displays have to be sold at a hefty markdown. Then they must pray nobody returns it, and with helpless help in the stores now after the mass layoffs I'm sure the return rates of the most expensive cutting edge product is going through the roof. In other words if they don't sell as many of those as possible on credit hoping for the customer to screw up and lose their deferred interest with a late payment, plus add ons like extended warranties, premium (and now unnecessary thanks to digital tech) cables, and installation services then they were better off not even carrying that premium model.

Best Buy also seems to be pressured enough that they aren't maintaining RTV rights, so if the TV comes back defective they're stuck with it. This is why they're closing so many stores and converting them to the outlet format, because they're stuck refurbishing themselves and having to liquidate in the outlet center.

Best Buy was doing just fine under their last CEO who applied a transformational leadership model to the whole company and found their niche in a mostly online marketplace. After Hubert Joly retired and the new CEO took over all she has focused on is Earnings Per Share through running around with a chainsaw and cutting all but entry level positions, closing stores (albeit at end of lease so they aren't paying lease severance), tightening policies, outsourcing Geek Squad (oops, I let their little secret out! That's why Geek Squad service has gone to crap!), and for some bizarre reason, maybe tax write offs, remodeling stores into Circuit City with a blue tower instead of red.

Best Buy earnings per share are insane, they exceed Walmart and many other companies showing that she has succeeded in maximizing profits to impossible levels. But all the other key indicators of a retailers health like comps are showing that the earnings are short term, and the long term health of the business has been severely damaged by these efforts. I'll bet that their close rates (closely tracked at electronics chains) are down double digits, returns are up (hence the tightening of return policy so people who get misled by bad service are stuck with the product that doesn't meet their needs, a sure way to lose the customer forever). They are following the path to destruction as they really give no customer a good reason to shop there other than suspiciously higher "selection" as explained earlier which is really meaningless once you micro analyze the specs on the 6 choices versus 2 at Costco. They're going to need to pull a "Starbucks" and bring Hubert Joly back from retirement in the next year or two, and even then it might be too late to save the company. They're going to cost cut themselves out of business.