As per media reports, electronic giant retailer
Best Buy Co., Inc.
) is likely to slash 950 employees from its Canadian operations
(Best Buy and Future Shop outlets) to cut down on costs.
Further, Best Buy is remodeling its outlets in Quebec, British
Columbia, Manitoba, Ontario and Alberta with
"Stores-within-a-Store" idea by collaborating with vendor
partners including South Korean giant Samsung and
These moves are a part of Best Buy Canada's efforts to streamline
its operations and lay more emphasis on developing its online
sales. This announcement comes nearly a year after Best Buy
Canada declared its decision to shut down 15 outlets and layoff
Earlier in Jan 2014, Best Buy's stock had crashed 30% in a single
day following dismal holiday sales data and the subsequent
trimming of guidance, raising concerns over CEO Hubert Joly's
ambitious restructuring strategy.
Best Buy's sales fell 2.6% year over year to $11,451 million for
the nine weeks ended Jan 4, 2014, while comparable store sales
(comps) dipped 0.8% over the same time frame.
Best Buy held that intense promotional war, which characterized
the holiday season, had significantly impacted its margins and
thus compelled a downward revision in its operating margin
guidance. The company had cut down prices, at the expense of
profits, to compete better with peers such as
Wal-Mart Stores Inc.
The only silver lining was Best Buy's strong online performance
amid heightened competition from online giants like
). Online sales at the domestic segment rose 23.5% versus 10% in
the prior-year period (nine weeks ended Jan 5, 2013).
The rise of e-commerce could become a potentially catastrophic
event for bricks-and-mortar retailers. Amazon has metamorphosed
the way consumers used to shop, and the company's performance
over this holiday season bears a testimony to it.
E-retailers have the biggest advantage of not maintaining any
stores and as a result command a better pricing technique without
denting margins. Bricks-and-mortar retailers falter on this
ground as prices can be lowered only at the expense of margins as
seen this holiday season.
We believe that Best Buy's strategy is on the right track.
However, it has failed to produce desired results as reflected in
the dismal holiday sales. Hence, it is not easy to comprehend
Best Buy's situation at present until we get a clear picture.
Best Buy currently carries a Zacks Rank #5 (Strong Sell).
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