Best Buy, the country's biggest electronics retailer by revenue, reported Tuesday that its third-quarter earnings fell short of expectations. The chain's quarterly profits dropped along with its domestic market share, which the company expects will be down for the year.
The announcement came on the same day that the Commerce Department revealed retail sales rose in November for the fifth straight month, though the report also indicated that consumers scaled back purchases of electronic goods and appliances. Best Buy's stock took a beating following its announcement.
What explains the company's poor performance?
- Blame Television, writes The Wall Street Journal's John Jannarone. TV sales, which represent a fifth of Best Buy's revenue, were weak across the industry as shoppers stayed away from new technologies like 3D sets. Jannarone adds that Best Buy will likely need to invest more in marketing and promotions.
- Blame Amazon, says Benzinga's Louis Bedigian. Best Buy's problem is that online sales grew only 7% this quarter, compared to 16% in the second quarter and 26% in the first. Disappointed with Best Buy, consumers are likely turning to Amazon to get their electronics:
Amazon offers more options than any other site. In addition to its own warehouse of items, the company allows other (and often independent) organizations to sell their items on Amazon.com. This gives consumers a plethora of additional pricing and availability options when shopping online.
- Amazon's a Factor, But There Are Others, claims Paul Ausick at 24/7 Wall St.: "What is not clear yet is whether Best Buy is a good proxy for consumer electronics sales leading into the holidays or whether larger retailers [like Wal-Mart and Target] used discounts to gain market share."
- This Is About the Traditional Electronics Industry Suffering, states Joe Weisenthal at Business Insider, who points to Best Buy's disappointing third-quarter earnings and the Commerce Department's report that electronics was a weak spot in an otherwise healthy November for retail sales. "It's not hard to reconcile this with the boom in tech and gadgets," Weisenthal says. "Popular products from the likes of Netflix, Apple, and others all have the effect of reducing the need for more expensive TVs, Blu-Ray players, etc. A company like Best Buy is a weak player in an industry that's clearly in a rut."
- The Great Recession Has Made Customers Smarter, argues Roger Nachman at Benzinga:
Best Buy was a major beneficiary from Circuit City's Chapter 11 last year, as consumers needed a place to go to buy their products. Well after a few years ... consumers are saying you can't compete on price, you better be offering an amazing in-store experience and something else that I can't get elsewhere. Best Buy is trying to do that with 'Geek Squad,' but no one in their right mind wants to pay some college kid $300 to set up their home theater for them."