Best Buy is a franchise that we all know and most of us do some shopping in their megastores. Over the past few years though, the company has struggled to compete, especially with online giant Amazon which sells much of what Best Buy does, at lesser prices. So what do consumers do? They drive to a Best Buy store, shop and get information about the electronic items, and then increasingly often use the Amazon app to see which price is lowest. Of course, in almost all cases, Amazon is significantly lower so they end up buying from the online store and receive it a couple of days later. That is becoming a true nightmare.
Best Buy’s Answer
BBY management has confirmed that in the coming holiday season, they will be matching Amazon pricing on most of those items. Good strategy? I personally think they’re missing the point. In most cases, that will mean losing money on those sales. The problem is not the Best Buy prices but its price structure. Amazon has so few fixed costs that it becomes nearly impossible for Best Buy and its hundreds of huge stores, employees, etc to compete. I’m not exactly sure what the solution is but clearly moving a lot of what they do to ecommerce would be a solution.
Financials Getting Worse
Last week, Best Buy warned that its Q3 earnings would be lower than expected, sending the stock down even more. If you only take a quick look at BBY’s numbers, you will see a dividend yield over 4%, a P/E ratio under 6, etc. It looks good but it also reminds of the ridiculous P/E ratio that RIMM was trading at just months ago. Everyone knows that BBY is in big trouble and they will not remain profitable for much longer.
Management Jumping Ship
When everything looks bad AND senior execs start leaving, you know you have a major problem. Mike Vitelli, head of Best Buy’s US Operations will be leaving the company just a few weeks after the company CFO Jim Muehlbauer also announced his departure.
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