Best Buy earnings drop 77 percent, offering buyouts
This blog was corrected at 3:35 p.m. PT to clarify the number of Best Buy employees offered buyouts.
Although Black Friday sales were better than expected, Best Buy's third-quarter earnings brought another heaping of bad news for the embattled electronics retail industry.
For the third quarter of 2008, Best Buy reported earnings Tuesday of $52 million, or 13 cents per share, on revenue of $11.5 billion. Wall Street had been anticipating earnings of 24 cents per share and revenue of $11.09 billion. It's a 77 percent drop from the same quarter a year ago, when the retailer reported earnings of $228 million, or 53 cents a share.
Best Buy CEO Brad Anderson put the industry landscape in stark terms.
"The historic slowdown in the economy and its effect on our business over the past 90 days have been the most challenging consumer environment our company has ever faced," he said in a statement. "We believe that there has been a dramatic and potentially long-lasting change in consumer behavior as people adjust to the new realities of the marketplace."
Anderson added that changes will be made to his company's cost structure. To begin with, the company is offering voluntary buyouts to "nearly all" of its 4,000 corporate employees. If buyouts are not taken, he indicated there could be layoffs.
He added that the company aims to cut capital expenditures in half, and will scale back store openings.
Best Buy is far from the only retailer struggling. Chief rival Circuit City was forced into bankruptcy and elected to close many of its stores last month, while regional electronics retailer Tweeter also shut its doors this month.
Erica Ogg is a CNET News reporter who covers Apple, HP, Dell, and other PC makers, as well as the consumer electronics industry. She's also one of the hosts of CNET News' Daily Podcast. In her non-work life, she's a history geek, a loyal Dodgers fan, and a mac-and-cheese connoisseur. E-mail Erica. 
The main reason I never see Walmart becoming the sole electronics retail store is that Wal-Mart's electronics selection to say the least is small. Walmart's entire electronics department would fit inside the computer department of a BB, nevermind the computer department of a Fry's.
I hate Best Buy, but even I admit that they aren't anywhere close to bankruptcy. They might close a few underperforming stores and freeze hiring for a while (turnover is so high that layoffs at the store level aren't likely needed except at the poorest stores), but I don't think BB is in that much trouble, yet.
Crutchfield comes to mind
I hope that we don't see Best Buy go under.
BB is in no danger of going under, but even if they did it wouldn't happen overnight and somebody over a course of years else would take their place. There is still plenty of demand for electronics in retail that I don't see how that demand could go unsatisfied for very long before someone(eg. Fry's, Microcenter, etc.) filled the void. Save for the logo and the name there isn't much unique about BB.
Ditto with cables. Even if you want premium brand names like Monster or Belkin you can often buy it for less than half what BB or CC does at Costco or Sam's Club. I once saw Sam's club selling Belkin Pure AV HDMI cable for $15 each. It isn't monoprice cheap, but it is the same brand name BB or CC charges 3-4 times more for.
While I like NewEgg, they aren't the biggest factor in BB or CC's downfall. The big issues for those two companies are two major changes in the retail electronics industry:
The first is that all forms of media CDs/DVDs/software are moving away from retail. iTunes is the number 1 seller of music according to multiple sources far exceeding BB and even Walmart. Between legal and illegal means the internet is depressing interest in buying DVDs and increasingly most software is getting distributed online. DVDs have increasingly become little more than loss leaders for other items. HD content will continue to be sold via Blu-ray discs for the near future, but depending within a decade even HD content will be commonly distributed online bypassing retail stores. Millions of dollars worth of profits are bypassing retail and AFAIK nothing is replacing them.
The second major factor is that margins on HDTVs are falling like a rock. As the prices of HDTVs has fallen so has the margins. Furthermore, as the technology has matured so has interest in service plans on TVs. Even if the store does sell a service plan it is dramatically less expensive because the average cost of the TV sold has fallen meaning that the price of the typical service plan sold has fallen as well.
There are other factors (poorly trained staff, uninformative signs/demos, etc.), but I most of the major factors that are hurting sales at retail aren't caused by NewEgg or in some cases even online vendors in general.
No thanks!! The stores have to adjust their cost structure to be competitive. Most people that buy computer items, or electronics are self service and dont want to pay for the overhead. We can do the researc on the internet, which is what I usually do and am an informed customer before I walk into one of those places so someone standing around in a red or blue shirt asking me if i Need help, I dont need, but i do need the LOWEST price and if youre not willing to give it to me, I guess I will go elsewhere.
I did howeverbuy a new laptop from CC the other day ONLY B ecause I hav $75 in GCs, a AAA Member 8% discount and it had a rebate attached. Otherwise if I didnt have all the extra incentives I Wouldnt have budged and bought online.
I don't know because one source has a better return policy than another or perhaps it is more convenient than another store. There are a lot of people who back when Costco had no limit upon their return policy bought all their electronics there just because they knew if something went wrong provided that they kept the receipt they could get a replacement, which often was better than what they bought. Even under their less friendly return policy on electronics there is still something to be said about a good return policy because not every issue will present itself within the 15 day return policy that is typical on laptops.
>Most people that buy computer items, or electronics are self service and dont want to pay for the overhead.
A lot of people want great customer service, but they paradoxically want to pay bottom dollar. Unfortunately, they rarely go together. Personally 9/10 I know more than any sales associate, but having worked at a electronics store, I can tell you that isn't the norm. A lot of people only think that they are smart. A majority of people I found working in retail fall for the megahertz myth for example. Beyond understanding HD size and that more RAM is generally a good thing, I found that most people walking into a retail electronics store are clueless about most other specs. They don't have a concept of one processor and another. They don't realize that USB isn't for plugging in monitors and the vast majority have no clue what Firewire is good for.
You and I may know what we are looking at, but the vast public usually does not. Ironically they say that they want good service, but they rarely seek out stores with good customers service. In some cases they don't even do a good job getting a good price for what they do buy.
> I dont need, but i do need the LOWEST price and if youre not willing to give it to me, I guess I will go elsewhere.
You WANT the lowest price, you don't NEED it. With that type of attitude I don't blame people for treating you badly.
I agree with you that BB and CC don't have a lot of good employees, but NOT every retail electronics store is like that. For example, stores like Fry's or Microcenter have quite a few associates who actually are interested in what they are selling and are pretty well informed about many of the products that they are selling. Furthermore, the selection and prices for computer components is typically much better than anything that you would find at BB or CC. In some cases there are some things that I can buy cheaper at Fry's than I can buy on NewEgg.
Theree are some great deals to be had online, but there are also still some deals in retail.
Lousy Customer Service killed Tower Records' WOW stores. Lousy Customer Service killed both The Good Guys and CompUSA with the same, long swipe. Customer Service killed Computer City. Customer Service killed ComputerLand. Will Customer Service kill Best Buy? Ah, who knows? But the Best Buy near my house treats everybody like garbage, until a manager is involved. I've gotten over 25+ employees fired from that particular location for making up store policy (the store director and I don't know what it is about these teens they hire, but they don't want to do anything at all for a customer). It is, though, only five minutes from my house. The Circuit City on the other hand...well, one day, there was glitch with their little, crappy check-scanning thingy. The salesman got on the phone with them and made sure my check was approved and good to them, and I was let go with a FREE set of those over-rated Monster cables to go with the DVHS player. From that day forth, I only go to that Circuit City, until it is out of business.
So, when we talk about CompUSA, TigerDirect, Infortel, Misco and the rest, we're talking about the Fortune 1000 Company, Systemax, Inc. (NYSE: SYX), a major system maker (amongst American OEM's, SYX is 4th after HP, Dell and Apple). SYX has very big equity ownerships in the same retail space you guys are discussing. SYX makes business systens - that's all - if you want gaming, media etc systems, you gotta go to their online retail sites and buy your HP or Sony or Apple or thing which they bought etc.
Frankly, they'lre not really in the ibusineass of selling less than 1,000 unit lots. But this online retail thing they've bought into is fascinating to them. It makes a profit. Now all they have to do is learn to make a better profit with all their assets firing in unison.
I think it'll be a good competition for this space between them and New Egg. New Egg is much smaller and much shrewder IMHO - and if I've thought of this, BB sure as shootin has, too!
There are 3 best buys withing 30 minute drive of me and i think that is too much.
Since there are even more PC Richard's and Circuit city's and others that all sell the same crap it is very bad business sense in my opinion. I am glad they and CC are closing stores. Although it will mean that a lot of these high school and college students could be out of work which would be bad for the economy and their development. I dont think it will kill consumers to drive an extra few miles or buy the item online.
They mail me stuff so often now that it almost makes me want to cancel my card and not even go back. They know I haven't been in awhile and I get special deal offers and coupons all the time for special shopping events and everything in between. Sorry Best Buy, hopefully I can come back some day.
- by i_made_this December 17, 2008 8:28 PM PST
- I live right around the corner of a huge BB. I always stop by on way to or from work just to see what's happening. The computer section manager is a great kid who knows her stuff inside out. She's brutally honest (to a fault in retail). Yesterday I stopped in to tell her to hold one of those so-tand-so syastems for me - I'll take it when the OEM knocks the price down by 33% as usual after Xmas. She responded, "Get at the back of the line! I'm in front and two other employees are on line, too. But you're 4th. Give me your Best Buy card for a sec." With that in hand, she scribbled something in her Blackberry and returned my card to me. I asked her how desktop (apple and windows) sales had been this season. She declared, "they sucked - but you know the days of desktops as we knew them are history, except for special super-computer people but they wouldn't shop at a Best Buy anyway." And laptops, "bad, but only because we stocked the wrong types heavily. What we should have stocked heavily are those ... " and she went onto describe a sea change in computing which she and I have long agreed is here and will continue to be so in laptops.
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(27 Comments)There's a Circuit City just down the street that was one of the ones that got closed in the bankruptcy thing. I asked her, "so, did you guys get some super bargains from CC?" A smirk came across her face, "Did you?" "What are you, kidding??" I replied and we had a laugh.
One thing is certain - there is major disconnect between traditional channels and the consumer, where computers and computer supplies are concerned. In my friends' words, "hey, maybe Best Buy will get bought by New Egg? Now, those people got it goin on. And they own one of best desktop brands on earth!"