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The End of Best Buy?

January 6, 2012

Like many other people, I like to shop at Best Buy. I know Best Buy doesn’t have the best prices on many things, and their return policy isn’t superb, but I enjoy going there to shop and also being able to find many things I need easily. That’s not as easy as it used to be, given that many electronics stores have folded up lately. In light of the evaporating competition, you would think that Best Buy is sitting pretty. But that may not be the case.

Today’s Quick Note is about a Forbes.com article by Larry Downes. The article, “Why Best Buy is Going out of Business…Gradually,” predicts the demise of Best Buy as a business in the next few years.

Given that only a couple of years ago, in the midst of the flat screen TV boom, Best Buy was something of a Wall Street darling, this may be a bit surprising to you. But Downes makes a compelling case. In fact, his opening paragraph doesn’t leave much to the imagination: “Electronics retailer Best Buy is headed for the exits.  I can’t say when exactly, but my guess is that it’s only a matter of time, maybe a few more years.” [italics are added by me to emphasize quotes from the article]

He supports this thesis with some interesting facts:

Consider a few key metrics.  Despite the disappearance of competitors including Circuit City, the company is losing market share. Its last earnings announcement disappointed investors.  In 2011, the company’s stock has lost 40% of its value.  Forward P/E is a mere 6.23 (industry average is 10.20).  Its market cap down to less than $9 billion.  Its average analyst rating, according to The Street.com, is a B-.

So who’s going to sell all those units that Best Buy currently rings up on its cash registers? Downes argues that Amazon and other on-line retailers will likely split those incremental sales. Not that Downes thinks Amazon is putting Best Buy out of business; quite the opposite, he things Best Buy is just failing on its own merits. His points are interesting and, in many cases, valid.

For my part, I can see merit in many of Downes’ points. The store environment is rapidly becoming less consumer friendly and more “salesy.” I particularly don’t like the high-pressure satellite TV salesman that now invest the television department. Downes’ writing seems a bit bitter to me, but his facts are hard to argue with. But all that said, several customer service staff in a store worked very hard to help me out of a pickle on Christmas Eve. They’re clearly doing something right, too. Best Buy probably has seen its best days, and it will be interesting to see how it digs out of hole it’s in. This article is quite good, for the most part. Take a look.

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