Best Buy Gaining Market-Share Following Circuit City Demise
By Mary Ellen Lloyd, Of DOW JONES NEWSWIRES
Best Buy Co. (BBY), the largest U.S. consumer electronics retailer by sales,
seems to be winning its fair share in the grab for customers since Circuit City
Stores Inc. (CCTYQ) went out of business in March.
Still, lower product prices tied to technology cycles, tough competition and
the U.S. recession's hold on consumers' wallets have hampered revenue
improvements.
And some analysts say Wal-Mart Stores Inc. (WMT) and other discounters may be
better positioned to benefit in the current environment.
Concerns that aggressive promotions will weigh on Best Buy's profits in coming
quarters helped push down shares 5.2%, to $38.22 at the close of regular trading
Tuesday, after the retailer raised full-year earnings guidance. The stock had
risen 44% this year ahead of Tuesday's report.
"Scrutiny of pricing and margins is likely to increase," said RBC Capital
Markets analyst Scot Ciccarelli.
Barclays Capital said swapping gross profit for market share is likely to be "
one of the central debates" among Best Buy investors this quarter.
Best Buy on Tuesday reported its largest quarterly market-share gain ever -
270 basis points. The retailer generated 22.3% of industry sales of consumer
electronics and appliances in the three months ended July 31, compared with
19.6% share a year earlier, company Chief Financial Officer Jim Muehlbauer in an
interview.
Market share fluctuates by quarter, but the latest figures show continued
improvement from its estimated 21% market share for fiscal 2008, Muehlbauer
said.
"We gained more share in the vast majority of our categories than any of our
competitors," he said.
Still, sales at U.S. stores open at least 14 months and through the Internet
fell 3.1% amid continued weak demand for discretionary, big-ticket items.
And while U.S. customer traffic increased slightly, the average transaction
size fell.
Representatives for Best Buy's closest competitor, Wal-Mart Stores Inc. (WMT),
or for Amazon.com Inc. (AMZN), couldn't be reached immediately or declined to
comment on market-share figures.
Quarterly, industry-wide statistics aren't readily available. Best Buy held a
23.6% share of the overall U.S. consumer electronics market in 2008, according
to estimates in the trade publication This Week in Consumer Electronics. Wal-
Mart had a 14.6% share and Amazon, which heavily features discounted
electronics, has only a 2.6% share.
Muehlbauer said those estimates may have excluded appliances, a category of
which Best Buy has only a tiny market share.
But he said Best Buy figured roughly $6.5 billion to $7 billion in sales were
up for grabs following Circuit City's liquidation. Best Buy, he said, was
uniquely positioned to grab a lot of it.
"Customers that shopped Circuit City are more predisposed to wanting help,"
similar to Best Buy shoppers, Muehlbauer said. "They were making the conscious
decision to not to go Wal-Mart or Costco or the online players."
"We should disproportionately attract those customers," Muehlbauer said. "Not
only have we seen that happen, we've exceeded our expectations."
Some of the retailer's initiatives this year, such as discounts on appliances
and offers of free installation for televisions over $999, are attracting
customers even though they weigh on profits, Muehlbauer and Chief Executive
Brian Dunn said during a conference call. But they should pay off in the long
run as Best Buy retains those customers year in and year out, they said.
"It's a very competitive environment that we're playing in," Dunn said. "We're
going to be there on price, and it is what our people bring to it and our
service offerings ... those things together give me confidence about the
economics for us."
-By Mary Ellen Lloyd, Dow Jones Newswires, 704-948-9145; maryellen.lloyd@
dowjones.com
(END) Dow Jones Newswires
09-15-091728ET
Copyright (c) 2009 Dow Jones & Company, Inc.
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