Best Buy Co., Inc.
), which is slated to report its fourth-quarter results on
February 28, has had a tough year. The retailer had a
disappointing third quarter. Earnings per share dropped from the
year-ago quarter figure of 47 cents to just 3 cents, a decline of
Total revenue and same store sales declined by 3.5% and 4.3%,
respectively. Moreover, comparable-store sales declined 4% due to
sales declines in gaming, notebooks, digital imaging and
But the tide seems to have turned in recent months. The holiday
season has been better than expected for Best Buy. Shoppers have
purchased higher numbers of flat screen televisions and other
major appliances. These developments have provided optimism to
investors, boosting the share price from $12.20 on Dec 12, 2012
to $17.41 at the closing of markets on February 21, 2013.
The major challenge which Best Buy faces along with traditional
) and smaller players like
) is from online retailers like
). The threat of online retail is even more relevant because of a
practice which has come to be called "showrooming". This refers
to a phenomenon where customers examine merchandise in person at
a physical store before purchasing it online at a better price.
However, a different kind of showrooming is emerging where
customers visit stores armed with their smartphones. In this
case, the loss of sales could be even more harmful.
Many retailers, such as Target, have chosen to combat this by
launching shopping apps which drive traffic to their own
websites. Others like Toys R Us have launched exclusive products.
The logic here is that if a product is available exclusively from
that retailer, the consumer can no longer opt to purchase it at a
cheaper price online.
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Best Buy is attempting to fight showrooming by adopting a price
matching strategy. Starting Match 3, it will match prices for
"all local retail competitors and 19 major online competitors in
all product categories and on nearly all in-stock products,
whenever asked by a customer." Of course, this offer is
restricted to a single item and there are other exclusions, but
it's the first concrete effort to combat the phenomenon.
Target has already made its price matching policy permanent and
stopped selling Amazon's Kindle. This is a clear signal that it
will no longer stock products from a company that was
aggressively eating away at its sales. Clearly, traditional
retailers cannot afford to give up market share to online
competition and are even aggressively trying to grab back lost
The bigger threat is possibly from the likes of
) which is expected to open its own retail outlets and
) which has already done so. Following in the footsteps of
), Google and Microsoft are also attempting to control every
aspect of the consumer experience.
One unique proposition which Best Buy had offered to customers
was its Geek Squad which provided assistance to consumers who had
trouble figuring out modern day gadgets. Even so, it was
considered to be below par compared to Apple's Genius Bar. If
Microsoft and Google both set up stores with similar specialist
employees, the Geek Squad could begin to lose its novelty
However, all is not lost for Best Buy. Its recent success and a
concurrent appreciation in share price have shored up its
fortunes. The company has even seen its ratings improved by some
brokers. Clearly, better days may be ahead for Best