Business Tech

Best Buy President and Chief Operating Officer Brian Dunn is set to be promoted to CEO this summer, when current Chief Executive Brad Anderson retires, the company announced Wednesday.

Anderson, who's led Best Buy for seven years, plans to retire from the electronics retailer at the company's annual meeting in June. He'll keep his position as vice chairman of the board of directors in order to help with the transition.

Dunn began his career at Best Buy as a store associate 23 years ago, rising through the company's ranks to become president and COO in 2006. He has been responsible for the company's 1,000 retail outlets in the United States, as well as its Geek Squad repair and installation services unit.

Best Buy is the largest consumer electronics retailer in the United States, and it has stores in 13 countries. It lost a major rival last week, when Circuit City, the second-largest electronics seller, was forced to liquidate all stores.

Although Best Buy has done comparatively well, it hasn't been unaffected by the current recession. Third-quarter revenue in 2008 dropped 77 percent from the year before, prompting the company to offer buyouts to nearly all corporate employees.

Best Buy lowered its fiscal-year earnings forecast on Wednesday, citing fears that consumers will keep their wallets under lock and key during the holiday-shopping season.

Best Buy, which saw its archrival Circuit City file for Chapter 11 bankruptcy on Tuesday, said uncertainty surrounding consumer spending has made it difficult to project revenue for the rest of fiscal 2009, which ends February 28, 2009.

Uncertainty usually scares investors, who pushed Best Buy's shares down a steep 10.85 percent to $21.29 a share in early morning trading.

Best Buy CEO Brad Anderson sized up the current situation with this statement:

Since mid-September, rapid, seismic changes in consumer behavior have created the most difficult climate we've ever seen. Best Buy simply can't adjust fast enough to maintain our earnings momentum for this year.

We're beginning to adjust our cost structure to restore earnings momentum and still gain market share.

The electronics retailing giant cut its fiscal-year revenue guidance to between $43.7 billion and $45.5 billion. It lowered its estimates for earnings per share to $2.30 to $2.90. And sales at stores opened at least a year, or comparable sales, are expected to drop between 1 percent and 8 percent for fiscal 2009.

Back in September, Best Buy was projecting fiscal year revenue of $47 billion and earnings per share of $3.25 to $3.40. It also previously predicted that comparable store sales would rise 2 percent to 3 percent for the year.

But with its September same store sales falling 1.3 percent over the same period last year and its October same store sales dropping 7.6 percent year over year, the first two months of its fiscal third quarter are expected to put a drag on the electronic giant's holiday season.

For the remaining four months in its fiscal year, Best Buy is expecting comparable sales to drop anywhere from 5 percent to a whopping 15 percent.

Best Buy President Brian Dunn put the situation in historical perspective:

In 42 years of retailing, we've never seen such difficult times for the consumer. People are making dramatic changes in how much they spend, and we're not immune from those forces. That's why it's critical that we manage our spending, while preserving key growth initiatives.

Circuit City Stores announced Monday it plans to close 155 stores and lay off 17 percent of its workforce in the U.S., as it aims to restructure its business amid a tightening credit market and downturn in business.

Over the past few weeks, the retailer's financial health has become more dire and, according to a report in The Wall Street Journal, was considering restructuring moves as a means to avoid a Chapter 11 reorganization bankruptcy filing.

(Credit: Circuit City Stores / Richard Cadan Photography)

The struggling electronics retailer noted in its announcement that not only have its sales dropped amid an economic slowdown and loss in consumer confidence, but also its suppliers have begun cutting back on the level of credit they are extending to the retailer.

"The current mix of terms and credit availability is becoming unmanageable for the company," Circuit City noted in its announcement.

That cutback by suppliers comes at a critical time for Circuit City, as it heads into the holiday buying season when it wants to replenish its stock with the popular items.

The company plans to begin a liquidation sale at its 155 stores targeted for closing (PDF) on Wednesday and is expected to continue the sale through the rest of the year.

Circuit City also plans to scale back plans to open new stores to two from 12 in the current fiscal year and suspend all store openings for 2010. The company will continue to operate in 153 U.S. markets and overseas, but will be exiting 12 U.S. markets as a result of the restructuring.

Other woes for Circuit City include a potential delisting of its stock from the New York Stock Exchange. Last week, the NYSE warned the company its stock price had fallen below $1 for 30 consecutive trading days, a trigger point for a potential delisting.

The NYSE warned the company on Oct. 24 and Circuit City has 10 days to resolve the issue. One common means that companies use in this situation is a reverse stock split, in which investors who hold a certain number of shares can swap them for a single share in the issuer's stock. For example, 10 shares of stock trading at 50 cents each would become 1 share that trades at $5 a share.

When Leslie Martinez walked into a Los Angeles-area Best Buy two weeks ago looking only for a 40-inch Sony Bravia LCD TV, she walked out with a heavily discounted Blu-ray Disc player, some Blu-ray movies, and half-priced HDTV accessories.

After seeing the TV she wanted at Costco, she turned to Best Buy to see if they could match the price. In the end, after a bit of negotiating with a salesman, the electronics retailer did much more than that.

"He made it almost impossible to walk away," Martinez said.

Retailers have offered bundled Blu-ray players with TVs before, but the way Martinez was able to haggle over the details sounds more like buying a car, not purchasing a TV at the biggest electronics retailer in the nation. And this is before the all-important late-year holiday sales rush, when the most attractive prices are normally found. It could be a sign that many of the best deals offered this holiday will be earlier, when retailers are still nervous that they won't be able to sell the products they ordered.

Though there's been a lot of "cautious optimism" regarding how consumers already hit hard by a downturned economy will respond when the holiday sales season really gets in gear, retailers now have a better idea of what to expect. The Consumer Electronics Association on Monday released its annual CE Holiday Purchase Patterns Study, and the news isn't great. The trade association expects just 3.5 percent growth in electronics shipments during the final quarter of the year compared with last year. It's so low that as Jim Barry, a CEA spokesman, said, "Any increase is a good thing."

And though when consumers were asked what items were on their wish lists for the holidays, 4 of the top 10 were CE devices like TVs, cell phones, and video game consoles. While that's encouraging for the industry, consumers are still tightening their gift budgets this year. Respondents to the CEA survey plan to spend $1,437 this holiday, which includes gifts, food, and decorations. But more importantly, it's $200 less than what consumers reported they would spend last year. That means something is getting cut out this year, and it's probably not food.

That could explain the great deal Martinez was able to find even before the traditional holiday shopping season. She'd seen the LCD TV model she wanted in Costco for $1,399, and the closest one she could find at Best Buy was $1,799. Armed with a photo of the price tag of the set seen at Costco, she asked a Best Buy salesman if he could match the price.

"He said, 'Since (ours is) a newer model, we can come down to $1,499 for you,'" Martinez recounted to CNET News. After consulting with her more tech-savvy brother, she told the Best Buy salesman she'd have to think about it since the price was still more than she expected to spend.

Clearly not wanting to lose the sale, the salesman decided to sweeten the deal. He threw in 20 percent, then 50 percent, off her accessories like an HDMI cable and surge protector. When Martinez still wasn't convinced, they went back and forth a few times before he added a Blu-ray Disc player--discounted from $399 to $199--and three Blu-ray movies.

The pressure to move products like TVs and Blu-ray players right now is only the latest sign that this holiday is not going to be particularly healthy. We've seen the signs coming since earlier this year, and retailers have been understandably nervous coming into the fall and winter. Those springtime stimulus checks from the government weren't just for fun--the retail economy has been sluggish for some time now.

"As we've gone through the summer, even up to Labor Day, back-to-school was relatively slow. (Retailers) made decisions that demand was likely to be reduced this holiday. A lot of retailers weren't as willing to stock up," said Steve Baker, an NPD Group analyst who follows consumer electronics retail.

The decisions for the TVs, PCs, cell phones, and GPS devices we see on shelves in November and December are made between February and March. Retailers decide on what products they want, and gauge which sizes, features, and colors they want to push. For Black Friday pricing specials (the day after Thanksgiving) those decisions must be communicated to vendors by July in order to ensure the correct number of volumes can be produced in time.

But this year, with so much uncertainty, retailers have been waiting until "the last possible moment" to place their orders, according to Steven Cook, vice president of strategy for Samsung.

Inventory just sitting on shelves is a concern for retailers because they don't want to get caught with an excess of gadgets, and some may prefer to set up contingency plans instead.

Rather than ordering a bunch of TVs up front, for instance, vendors can be conservative about how many they take, and strike an agreement with specific brands ahead of time to supply smaller, emergency volumes of their TVs later, if it appears that they're selling better than they thought.

According to Baker, "They're thinking 'I'd rather run out than have a ton leftover.'"

This could work out well for consumers. If you're being conservative with your budget like many people have said they will be--and retailers are clearly aware of this--they know that on certain products no matter how much they lower the price, that's not necessarily going to get you in the door.

For that reason, trying to wait out retailers on their prices by buying as late as possible--as we've seen for the past few holiday seasons--isn't a sure bet. Because they'd rather have too few TVs than too many, there will still be good deals to be had, as Martinez' Best Buy experience shows, but it looks to be earlier this year than usual.