April 21st, 2014
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Best Buy: Where We’d Back Up the Truck

by Rick Ackerman on November 28, 2012 4:55 am GMT · 6 comments

Let us say a prayer for Best Buy as the company attempts a daring overhaul. There is surprisingly good news on this front, and we’ll get to it in a moment. Suffice it to say, the stakes are extremely high, since failure could mean that ten years from now, quite a few of the things Americans buy other than food will necessarily come from Walmart, Costco and Amazon.  For USA shoppers used to limitless variety, this would be Bedford Falls without George Bailey. Bleak as that may sound, it hardly exaggerates the possible endgame of a trend that has seen vacated storefronts spread like a pox across America. Big-box operators in particular have been failing at an alarming rate, leaving gaping holes in strip malls and once-thriving city streets. The Great Indoors, Hollywood Video, Linens ’n Things,  K.B. Toys, Borders, Montgomery Ward and Woolworth’s were all household names that have vanished from the retail landscape if not yet from memory.

Competition in the consumer electronics business in particular has been brutal, laying waste not only to CompUSA and Circuit City in recent years, but, before them, to Tweeter, Federated, The Wiz, Crazy Eddie, Incredible Universe, Musicland, The Good Guys and Computer City.  This is capitalism’s “creative destruction” at its most devastating, and it could continue to ravage the retail scene for years to come.  Just ponder the list of big-box survivors whose days could be numbered: Sears, Barnes & Noble, Bed Bath &  Beyond, JC Penney, Macy’s, Nordstrom, Office Depot, Office Max, Staples, Toys R Us, Blockbuster Video.  Sears, which has been dying since the 1980s, few will miss. But if two far better emporiums, Macy’s and Nordstrom, fail, we’ll all be buying pants the same way we now buy shirts: “One-size-fits-all-orangutans”.

The Good News…

Now for the good news: Best Buy’s future has been entrusted to a guy with some very good ideas and a solid game plan. Stephen Gillett, 36, came to the company from Starbucks, where as chief information officer he helped pull the ubiquitous coffeehouses out of a steep dive. At Best Buy, his goal is to build on the firm’s main strength: showrooms that are everywhere.  Nor is their drawing power in doubt. With $50 billion in revenues last year, Best Buy sold more PCs, cameras and phones than any other consumer electronics vendor in the world, including Walmart ($35 billion) and Amazon ($14 billion).

So how does Best Buy get customers to buy the stuff they’ve come to the showrooms to examine?  Gillett’s plan is simple: put experts on the sales floor who can provide in-depth answers to shopper’s questions; then, do your best to match or beat the competition’s lowest price, online or off.  Concerning the sales-force upgrade, most of Best Buy’s floor personnel are generalists with just a smattering of knowledge about the various products they sell. Under Gillet’s regime, they’d be more like the whizzes at Apple stores, able to provide detailed information and a level of service that has been sorely lacking at Best Buy stores since the chain was founded in 1981.

A Jump on AMZN, eBay

Keep in mind that the company already has a formidable presence online, operating the 11th largest ecommerce site and growing sales revenues, currently around $3 billion, by more than 15% per quarter. Ecommerce could account for fully half of Best Buy’s revenues within three years.  Meanwhile, shipments to the company’s 1,400 stores are already quick and reliable, creating a ready-made distribution network — like the ones Amazon and eBay are building — for online shoppers who want to pick up their merchandise the same day.

From a technical standpoint, Best Buy’s shares (NYSE: BBY) have been in a bear market since 2006, when they traded as high as $59.50  More recently, groping for traction near $13, they looked like they could go even lower. Specifically, our proprietary forecasting method, Hidden Pivot Analysis, suggests the stock is going to bottom at exactly $6.76. (See chart above.)  Although that would represent quite a fall from current levels, it would be perfectly normal for investors to remain despairing until Best Buy has reported decent earnings growth for at least a couple of quarters.  If you’d like to be apprised in real time of any subtle upturn in the stock, assuming one comes, consider a free trial subscription to Rick’s Picks. For information about the Hidden Pivot Method and “Camouflage Trading,” click here.

Take the Hidden Pivot course at your leisure, in recorded one-hour segments. The real-time Wednesday Tutorial sessions, the HP Tutorial video library and a confirmed seat at the next live Hidden Pivot webinar on May 21-22, 2014 come as part of the package.



{ 6 comments }

gary leibowitz November 28, 2012 at 5:10 am

Great idea. In fact the one name world wide when it comes to camera equipment is B and H Photos. A huge NYC store that has an enormous amount of well informed help. They do business around the world. When you visit the store you will see people from all corners of the globe. They have systematized the store in such a way that specific lines are for specific tasks. You can view the merchandize and test the equipment before buying. An assigned line for specific products for order, another for credit card purchase, and another for pickup. Extremely fast with conveyer belts to transport the equipment at the time of the initial order to the pickup line. They have expanded over the years to include all other types of electronics.

I know in their case it took time for reviews and word of mouth to gave them this prestige. Hope Best Buy can buy enough time to pull it off.

John Jay November 28, 2012 at 3:00 pm

I think what helped to kill off that list of consumer electronics stores is the ongoing deflation in prices for electronics. I remember when I first went to work for the old Burroughs corp out of college in the 1970’s, a desktop calculator was $1200, and it was the size of a typewriter.
And that was in pre inflation 1970’s dollars. I can also remember when you had to get stock charts in the mail from a service whose name I forget. Now powerful calculators are almost free, and Walmart has 32″ flat screen TVs for under $300. and laptops that went for $6,000 when they first came out are about the same cost as that Walmart 32″ TV, at the low end anyway.
There is a company in India that is going to market a cheap a cheap $40 tablet.
http://bits.blogs.nytimes.com/2012/10/19/a-40-tablet-tries-to-compete/
Best Buy is really fighting a very strong headwind in the consumer electronics. The product just keeps getting cheaper and cheaper. I hope they can hold on.

Oregon November 28, 2012 at 5:44 pm

Seems to me that what we are really talking about here is markup. Everybody can sell the same cheap or expensive stuff, but how to make a margin on that stuff and keep employees and doors open is the challenge. For decades now technology and cheap global labor pools have allowed for deflation in product pricing and the final straw is this ‘recession’ that is allowing for cheaper domestic employment.

Rick, what you are basically saying is that in order for Best Buy and others to survive, they need a competent sales force that will cost them next to nothing. And isn’t now the perfect time to find it? All those very educated, tech-savy, unemployed, college grads should do.

Chuck November 28, 2012 at 6:57 pm

Ever wonder what drives this Buffett guys? He discusses me when he sucks up to the fed government for handouts and inside information. Such a bottom-feeder.

gary leibowitz November 28, 2012 at 10:23 pm

Hey Rick,
Is this off topic? Never mind, he is on your team.

&&&&&

The welcome mat will always be out for anyone who comes here to diss Buffett, Gary. RA

Carls November 29, 2012 at 2:16 pm

Here is my quickie Best Buy/Black Friday report. Went there at 1PM and it was not crowded. 5 years ago at this time it was. I just glanced at the scene real quick because my real objective was Office Depot to buy a discounted APC power supply for a desktop computer. Best Buy did have their own house brand Dynex 32″ LCD TV going for $169 and there some still left

Plus zoomed down St Rd 7 which is the heart of Ft Lauderdale. So many closed storefronts I never noticed before because this time I was not driving. My main economic point for years (for Americans) has been “What are we doing to justify, to earn our highfalutin lifestyle. What do my fellow citizens, green card holders, illegal aliens do to justify (earn) the nice house and nice new iron they are driving? I cannot give an answer. What scams are they running that involve Gov’t money?

I have a liberal Obama voting friend who is a good example of how Obama won. His prime economic gripe is about “Fairness”. That the rich don’t pay enough taxes. It never penetrates his thick skull when I tell him the largest problem in America is a severely out of wack economy that comes from unstoppable economic forces that have come into play in the last 25 years. The first one and most obvious one is letting so many good paying factory jobs leave America for China and Asia due to our moronic faith in free trade. Computerization and automation have killed off these jobs too. What has unfolded here was foretold in “The Reckoning” by Davidson and Rhees-Moog in 1992. I am sure Rick had read it. A revisit of it for a blog entry would be a good idea.

So my lib friend harps on tax fairness. A better economy with better jobs for all is #3 on his list. Maybe he and Obama have the right idea. They subliminally know the US economy is going to suck from here on out so Obama doesn’t waste his time on wealth creation for the middle class via more and better jobs. Why should he when the millions in the gimme class love the crumbs they get from the Federal Gov’t and love to hear that their crusader Obama is going to exact vengeance on “the rich” The gimmes could care less about logic and education or they would know that reaming out the rich will only keep the US Gov’t operating a few days. For them and most Americans, voting is done for candidate X due to the emotions he arouses

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