Best Buy: The Bulliish Case?

I’ll preface this comment by saying that I’ve been (unprofitably) short Best Buy for a few months now, so …. I’m interested to see the retailer’s moves today. I have a general thesis that downbound companies go through multiple phases, analogous to the stages of grief when dying. Late on this list is “Doing dubious acquisitions”, and it strikes me that Best Buy has reached that point with its purchase today.

I am, however, perfectly happy to be convinced I have this all wrong. What is the strongest case for continued Best Buy dominance going forward? Is there a role for a big box retailer in consumer electronics in a world of Amazon, Pricegrabber, NewEgg, et al? I’m genuinely curious.

I’ll start things off: I haven’t purchased anything in an bricks-and-mortar electronics retailer in at least three years, and maybe longer. I have popped my head in, mostly to a) use the restrooms, oe b) treat the store as a showroom for things I was planning to buy online.

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Comments

  1. Tim says:

    I'm a bit of a bear when it comes to Best Buy as well. I just wonder why you choose to short BBY right now over HGG? Popularity?

  2. Lord says:

    In my experience, the Best Buy website is better than the rest with more and more pertinent information so while I frequently purchase online, it is often from there. The showroom aspect is not to be undersold. I can't imagine ordering a flat screen without seeing it first. It tends to be important where ever look, listen, or touch is. I just wonder if they are capitalizing on it sufficiently from manufacturers. There are probably enough non technical people that assistance and installation may be helpful. Impulse shoppers are less price sensitive and more readily satisfied by retail. There is always power in carrying customized product you can't buy elsewhere which I often see different on different sites. Still, it must be hard to compete in such a competitive market, even if only online.

  3. mee says:

    BBY has no future. They have poor selection, poorly trained staff with limited knowledge, they lie and bait and switch, service is atrocious if you have a problem (returns), and when Circuit City went under they forgot about Amazon and WalMart and went for the high price model.

    Barnes and Noble (slashing the rewards program effectively raising prices) is making the same mistake now that Borders is gone. On the other hand, Bed Bath and Beyond has handled the loss of Linen & Tings rather well with low prices and the coupons.

    Check out the Consumerist web site and check the complaints about BBY. I usually take their ad to Target or Walmart for the price match.

  4. Bill says:

    As required by law, I hope that you're remitting the 7% – 8% use tax on all of your Amazon purchases, Paul. ($140'ish on a $2,000 TV from Amazon for a resident of San Diego County)

    Otherwise, you're evading taxes!!

    Also, if I'm handed the keys to Best Buy and can dictate policy and wave my wand, I'm embarking upon a risky strategy – but one that is the only way to save the company. We approach producers like Samsung and basically give them an ultimatum: if you continue to sell to Amazon and / or distributors that then sell to Amazon, we're no longer carrying your products. It's sometimes difficult to imagine just how long 5 years is, but I believe that demand for a producer's products will deteriorate over years and years as consumers cannot see them on a floor, touch them, etc. A radical thesis, but one that I believe that gives brick-and-mortar much more advantage over the commodity-feel internet era that we find ourselves in right now. (and have been in for the past 7-10 years)

    • Paul Kedrosky says:

      My issue isn't any evasion-based tax differential; my issue is convenience.Anyway, interesting strategy. Doesn't seem like it could ever happen,however, which points to the company's plight.

    • mee says:

      BBY is known as Amazon's showroom. If you think fo one minute I would buy a Samsung if it was only available BBY you are wrong, that is not competition. Secondly, BBY doens't carry stuuf that Amazon does.

  5. Lucky says:

    Favorable commercial real estate market and a lack of local brick and mortarcompetition that is keeping BBY bouyant. Like a clogged toilet, it wont go down till it's forced. Then when it does there will be the vacuum that occurs (a lengthier discussion). Besides, where are the margins in this business but in the add-ons still? So you buy a large ticket item on Amazon then you grab a hdmi cable while you frequent the loo.

  6. Lord says:

    They are squeezed by online retailers on one side and other brick and mortars (Frys, Walmart, Target, Sears, Staples, etc.) on the other. I agree with the criticism but when you can't even find out if a computer on Amazon has USB3, call me unimpressed with their competition. There is convenience in shopping online and convenience in picking up now rather than waiting for something to arrive. There is convenience in delivery of large items and convenience in evaluating look and feel physically. There is convenience in customization and convenience in prematched selections. The difficulty is what the conveniences are worth and whether it can be provided for that cost. Mainly I see each one taking different product mixes to fit their clientele. The product you can buy anywhere isn't much of an attraction to anywhere.

  7. Danny L says:

    The only time I've been into a Best Buy in the last 5 years was to look at a TV that I then went home and bought online. That said, there were lots of other people there, and they were actually buying things. In the long run, I don't think Amazon is their competition, I think Walmart/Target are. They've been expanding into higher end electronics, instead of just no-name brands. It's hard for me to understand why I would pay a premium for a product at Best Buy…because I like the blue and yellow decor?

  8. Alfonso the great says:

    BBY doesn't make sense to me as a short. It's still generating plenty of stable free cash flow and (despite this acquisition) they mostly use that cash to buy back stock. As long as that's happening the price per share isn't going down. And despite your shopping habits (PK), the business is not about to close doors in the next few days, as evidenced by fairly stable sales during the recession. They have the scale to be competitive on price for the big ticket items (the ones for which everyone checks price), and they make money on the accessories that no one bothers to check prices for (cables, adapters, silly little things you buy along with the big screen tv). Plus, (as someone else mentioned above) I've been to their stores recently and they are full of people (apparently not Paul K) buying stuff… So what do you know, we are not going to live in a waste-land of empty warehouses, criss-crossed by delivery trucks bringing online orders to everyone's doorstep.