The Big Story Blog

The Big Story Blog: January 6, 2012 Archive

Friday 1/6/2012
What's Best Buy's future?

Posted at 6:20 AM on January 6, 2012 by Paul Tosto
Filed under: Hed

Best Buy is one of Minnesota's largest companies. But it's stumbled during the holiday season and the recent trends for the electronics retailer don't look good. With the company today reporting crucial December sales data, Big Story Blog looks at Best Buy's present and future.

Is Best Buy built for the long haul?

Posted at 6:20 AM on January 6, 2012 by Paul Tosto
Filed under: Economy

bestbuy2500.jpg
(Photo by Justin Sullivan/Getty Images)

"Electronics retailer Best Buy is headed for the exits," Forbes correspondent Larry Downes wrote this week in a scathing analysis of the retailer and its future. " I can't say when exactly, but my guess is that it's only a matter of time, maybe a few more years."

He went on to dissect the company's strategy, its customer service woes and declining fortunes. Forbes' managing editor wryly noted that more people would read the Forbes critique of Best Buy during the week than shop at Best Buy.

On Thursday, Bloomberg News wrote Best Buy, headquartered in Richfield, could be a great buyout candidate:

After losing almost a third of its market value in 2011, the world's largest seller of consumer electronics is now valued at just 3.6 times its free cash flow, the cheapest of any retailer worth more than $1 billion... Best Buy, one of the five worst-performing retail stocks in the Standard & Poor's 500 Index last year, has also reached its cheapest valuation relative to earnings.
This kind of talk would have been hard to imagine three years ago, when Circuit City, the other big retail electronics giant with stores across the country, filed for bankruptcy and eventually liquidated its stores. But Amazon.com and Wal-Mart are formidable competitors.

We'll get a better picture of Best Buy's financial health today, when the retailer releases its crucial December sales figures.

Even good news, though, may not stop questions about the company's future.

We'll spend the day on Big Story Blog looking at Best Buy's future, examining the December sales data and what's being written and get perspective from Minnesotans in the MPR News Public Insight Network about their Best Buy experiences. Join in.

Best Buy says December revenues flat, sales slip

Posted at 8:38 AM on January 6, 2012 by Paul Tosto
Filed under: Economy

Lower-than-expected customer traffic in the last week before Christmas pushed Best Buy's December sales down from December 2010. But the company this morning said it still expects to be within earnings estimates for the fiscal year.

Overall revenue for the five weeks ended Dec. 31 came in at $8.4 billion, which was flat compared to the same time in 2010. Besides the flat revenue, Best Buy acknowledged a 1.2 percent decline compared to 2010 in stores open at least 14 months.

Best Buy shares were up slightly following the company's morning news release.

Here's the press release from Best Buy:

MINNEAPOLIS, Jan. 6, 2012 -- Best Buy Co., Inc. (NYSE: BBY), a leading multi-channel global retailer and developer of technology products and services, today reported revenue for the five weeks ended Dec. 31, 2011, of $8.4 billion, which was flat compared to the prior-year period and included a comparable store sales decline of 1.2 percent.

"We built off of share gains in the third quarter to deliver December sales that we believe compared favorably to the retail CE industry," said Brian J. Dunn, CEO of Best Buy. "Based on our performance in December we continue to expect to achieve our annual guidance, despite customer traffic that was lower than expected until the last week before Christmas, which resulted in December revenue that was slightly lower than our expectations. The actions we have taken during the year to improve our performance online and in key connectable products such as tablets, eReaders and smart phones continued to deliver strong growth in December. I want to thank our employees for their significant dedication to serving our customers during this key holiday period."

The company's Domestic segment generated $6.5 billion in revenue for fiscal December, an increase of 0.4 percent when compared with the prior-year period. The Domestic segment's revenue performance was driven by the addition of new stores in the past 12 months, partially offset by a comparable store sales decline of 0.4 percent. Domestic segment areas of comparable store sales growth included tablets and mobile phones within the Computing & Mobile Phones revenue category, eReaders within the Consumer Electronics revenue category, and the Appliances revenue category. Tablets and eReaders each delivered low triple-digit comparable store sales gains during the month.

Mobile phones had a 20 percent comparable store sales increase during the month, driven by strong smart phone sales. These increases were more than offset by comparable store sales declines in other areas, including gaming within the Entertainment revenue category and digital imaging within the Consumer Electronics revenue category.

Gaming and digital imaging both experienced low double-digit declines in comparable store sales. The company noted that televisions experienced a mid single-digit comparable store sales decline within the Consumer Electronics revenue category. The company also noted that overall Domestic segment inventory levels finished fiscal December in line with its expectations.

The Domestic segment online channel delivered a 26 percent revenue increase compared to the prior-year period, driven by a strong traffic increase and momentum from share gains achieved in November.

The International segment's fiscal December revenue totaled $1.9 billion, a decrease of 1.7 percent versus the prior-year period. The revenue decline was driven primarily by a comparable store sales decline of 4.3 percent and unfavorable fluctuations in foreign currency exchange rates, partially offset by the addition of new stores in the past 12 months.

The International segment comparable store sales decline was driven by comparable store sales declines in our stores in Canada and Europe. Sales results for all countries in the International segment other than Canada are reported on a two-month lag.

Best Buy's so-so Christmas better than analysts thought?

Posted at 10:21 AM on January 6, 2012 by Paul Tosto
Filed under: Economy

bestbuy1500.jpg
(PAUL J. RICHARDS/AFP/Getty Images)

MPR News reporter Martin Moylan is writing today on Best Buy. Here's his report from the company's news this morning that revenues were flat for December.

Richfield-based Best Buy didn't have a very good Christmas but it was better than last year's.

Last month, the consumer electronics retailer saw about a one percent drop in sales at stores open at least 14 months. But in the same month last year, so-called same-store sales fell four percent.

Same-store sales is a key gauge of a retailer's financial health because it excludes stores that open or close during the year. At Best Buy, the measure also includes online sales.

Despite the drop in sales, Best Buy stock is up about two percent in early trading. Edward Jones retail analyst Matt Arnold says that's because Wall Street expected a steeper sales decline.

"It's all about expectations," he said. "There's a lot of pessimism as we all know surrounding this story. So, sometimes less bad is enough to make a stock work favorably. And this is definitely evidence of that."

December is a crucial month for retailers since the holiday period can account for a third or more of annual sales.

Despite the sales decline last month, Best Buy reaffirmed its profit forecast (on an adjusted basis)of $3.35 to $3.65 per share for the full fiscal year. Best Buy reports its full-year financial performance March 29th.

December is a crucial month for retailers since the holiday period can account for a third or more of annual sales.

Best Buy says tablet computers, smart phones, appliances and e-readers were strong sellers last month. But TVs, digital cameras and video consoles and games were weaker.

Analyst: Best Buy's December OK given challenges

Posted at 11:40 AM on January 6, 2012 by Paul Tosto
Filed under: Economy

Its December revenues were flat compared to last year and same store sales were slightly down, but analysts following Best Buy today say the company did well given the economic pressures its under.

Best Buy shares are up four percent today following this morning's December sales figures announcement.

MPR News reporter Martin Moylan writes:

Sales were down last month at Richfield-based. But the sales drop for the consumer electronics retailer was not as great as last year, despite stiff competition. Martin Moylan reports.

Last month, sales at Best Buy stores open at least 14 months fell about one percent. But a year ago, sales dropped four percent.

Some analysts see last month's sales results as a positive for Best Buy, which faces intensifying competition from rivals such as Target, Walmart and Amazon.com.

Steve Baker, vice president at The NPD Group, a consumer and retail market research firm, says the sales numbers weren't bad, given the economy and the intense competition between retailers.

"We saw some pretty aggressive pricing in categories like flat panel televisions, which always depresses revenue," he said. "So, overall, I think they performed pretty well in very challenging environment."

Best Buy reaffirmed its profit forecast for the year, despite the sales drop in the key holiday shopping month of December.

Readers reveal three challenges facing Best Buy

Posted at 1:15 PM on January 6, 2012 by Paul Tosto
Filed under: Economy

Investors are snapping up Best Buy shares today following news this morning that the company's December sales, while not great, were better than many analysts expected.

But while the stock price is up more than four percent today, that doesn't mean everything's great. Best Buy's been dogged in recent weeks by stories and essays critical of its overall performance (the stock value fell by nearly a third during 2011) and speculation that the Richfield-based retail electronics giant's days are numbered.

We got that strong sense, too, reaching out to Minnesotans in the MPR News Public Insight Network. While it's not scientific at all, the responses we got from readers about how they buy electronics indicates three big challenges for the company going forward.

Browse the bricks and mortar, buy online. Several readers told us that Best Buy is good for trying out new products but that they go somewhere else to make the purchase.

I"n my opinion the only value they offer is to go touch something you want to buy. I have done this many times and bought what I wanted else where," wrote David Holmes of Chanhassen.

Websites like Fatwallet, techbargains, slickdeals can all help the average consumer find good deals. Also manufacturer websites commonly sell refurbished and end of year close outs.

Additionally big box stores like Costco offer superior deals and customer service on certain items. Locally I am actually a fan of MicroCenter they have competitive pricing on some things and good sales people.

Employees count. We heard a lot from readers about their experiences with Best Buy staff. Tim O'Neill of Rochester spoke of the "very helpful" saleswoman he worked with when he bought a computer last month. Ditto for Colleen Peterson of Circle Pines, who wrote that she preferred going to a store "where I know I can go back and talk to a person if I have questions."

Others told us of struggles and frustrations. "They are not putting themselves out of business because of the internet, or their lack of cutting edge offerings. They are putting themselves out of business by providing sub par customer service," said Damon Moss of Minneapolis.

... it is quite clear upon any interaction, that the sale is the bottom line, and if you so much as hint that you are done paying, they vanish. I could've been a repeat customer. I could've told the thousands of people I encounter in my own job a better story about my experience. But if I'm the average sale, the average experience, for Best Buy customers, then it's clear to me why they won't be around very much longer.
"Best Buy has forgotten what far too many retailers have, selling is a people business and if you de-value your employees your customers WILL leave," wrote Jeremiah Myer of Waseca.

"During the holidays, it seemed to me that the managers were very anxious and stressed and the employees were unhappy," he said. "The store was busy but not crazy. As a lifelong retail worker I pick up on the store 'vibe' pretty easy... the vibe at the store was fear and unhappiness."

Feeling good about the deal? Many readers who responded didn't think they were getting the best possible deal at the Best Buy store. That's a serious problem for any retailer. No matter the store, everyone wants to walk out feeling like they saved a few bucks and didn't buy more than they needed.

"My son works with computers and electronics and he consistently tells me that I can find a better deal than Best Buy," Peter Blewett of Apple Valley wrote.

Frank Allen of Grand Rapids recalled a Best Buy store trying to "add on grossly over priced cables to my mothers order. They really tried to take advantage of an elderly person who was not too sophisticated in the latest electronics Best Buy's training is lax. some people are aware of customers and ready to offer assistance while others talk to each other and you feel like they dont appreciate customers."

Again, responses from our Network aren't scientific or necessarily representative of the state as a whole. Their sentiments, though, are not unusual. It's the same criticism leveled earlier this week in the Forbes story .

Click on the icons below to read what Minnesotans told us about buying electronics and the pros and cons of Best Buy.

View What's Best Buy's future? in a full screen map

Best Buy CEO says company is strong, profitable

Posted at 2:40 PM on January 6, 2012 by Paul Tosto
Filed under: Economy

Reacting to criticism of Best Buy, including an essay in Forbes that concluded the company's days are numbered, Best Buy chief executive Brian Dunn acknowledged some mistakes but defended the company's business model and said the criticism "blatantly and recklessly ignores overwhelming evidence to the contrary."

Dunn took the blame for Best Buy having to cancel some internet orders made before Christmas and said the company was working to make sure it never happened again. He also took on critics of the company generally. Read his blog post below.

Best Buy has been taking some criticism lately. As CEO, I know that criticism goes with the job, and I'm well aware we have some challenges. I also know that errors we make often translate into a poor experience for our customers, and that is simply unacceptable.

Still, while I agree with some of the commentary on areas we need to improve, I feel it's important to set the record straight on statements about our company that are, in my opinion, not completely grounded in fact. And I feel the need to do so, in part, to make sure our 180,000 hard-working employees understand the whole story - and have the full context that allows them to develop their own opinion about what's written and said about Best Buy.

Let's start with a couple of examples where I think the critics got it right.

The cancellation of some internet orders just before Christmas was our fault, and it's not representative of how we EVER want to treat our customers. I'll spare you the technical explanation of how and why it happened, but we know we did not deliver a good experience and we're truly sorry. We've worked to make amends with customers whose holidays were made less happy because of our mistake, and we're working diligently to make sure it doesn't happen again.

Another area where we have received fair criticism is the overall speed of the transformation of our business model - something we are working hard to address. We've accelerated changes to key elements of our model already (the significant expansion in the number of products available on Bestbuy.com and the launch of our online Marketplace are two recent examples), but we need to move even faster, particularly in creating a more seamless experience between our stores, web sites, call centers and services teams. We recognize people can and do shop from anywhere, and they expect thoughtful, helpful interactions from us every step of the way. We continue to invest in a number of areas - from employee training, to critical system enhancements - to ensure our customers always receive the kind of experience they deserve and expect from us, wherever and whenever they choose. But, simply put, that work needs to happen faster - and we're taking significant steps to accelerate the pace.

Now, onto a couple of topics where I disagree with the critics.

First, some believe the internet has made physical retailing (i.e., stores) irrelevant. There's no doubt that the internet, and the mobile web in particular, have changed the way people shop, but there is strong evidence that consumers continue to value the experience of shopping in stores. A recent study by the NPD Group, a leading market research company, notes that nearly 80% of consumer electronics revenue still moves through physical stores. Additionally, approximately 40% of customer purchases made through Bestbuy.com are picked up in one of our stores. And the truth is, traffic in our physical stores increased in our third quarter and has been trending positively for most of the year.

Finally, there are those who question the validity of Best Buy's business model. This misguided perspective is especially troubling for me, because it blatantly and recklessly ignores overwhelming evidence to the contrary. Best Buy is a financially strong and profitable company that has generated more than $2.6 billion in cash flows from operating activities in the first three quarters of the fiscal year. We also delivered positive operating income in each of the first three quarters of fiscal 2012. We grew total market share in the third quarter according to the most recent public data available. We have closed down certain operations that were not profitable, which we expect to have a positive impact on our earnings going forward. And we are focusing the company on areas where we see the greatest opportunities for growth and profit: mobile devices and connection plans; enhanced digital and e-commerce strategies; growth in our services business; and expansion of our established business in China.

As I mentioned earlier, we fully expect to receive our share of criticism - we're a big company and we don't always get everything right. But this is one of those times when I felt it was necessary not only to acknowledge our shortcomings, but to set the record straight on issues where facts are being obscured by rhetoric.

After brutal 2011, 'sense of stability' at Best Buy?

Posted at 4:00 PM on January 6, 2012 by Paul Tosto
Filed under: Economy

Here's some perspective on Best Buy from MPR News business editor Bill Catlin:

Best Buy announced the December results at what seems to be an inflection point in the company's history. Last year was brutal for the company. Its share price dropped 32 percent over the course of the year. But the past month has been especially painful.

When the company announced disappointing quarterly earnings in mid-December, the share price fell a bone-crushing 15 percent. The following week news outlets lit up with stories that Best Buy was cancelling orders placed online at the start of the holiday season.

Some of the headline writers didn't hold back:

Gizmodo: Best Buy is Ruining Christmas [Bad Buy]

WTHR: Some Best Buy customers left in the lurch

Kansas City Business Journal: Best Buy's Black Friday may bring a blue Christmas

The company later said the problem affected less than one percent of orders placed online during the Thanksgiving weekend and the following week. But the bad PR undoubtedly reached more than 1 percent of its customer base.

Then last week, a blog post vivisecting Best Buy on the Forbes.com website went viral. The title was: Why Best Buy is Going out of Business...Gradually. Here are a few of the harpoons:

"It's not competition from Amazon that's killing Best Buy here; Best Buy is doing most of the damage to itself."

"It's not just Amazon's prices that are better.... Its customer service is superior in every way."

"[Best Buy] is caught in a death spiral. Not because of new competitors who, fairly or unfairly, are eating its lunch. These wounds are self-inflicted."

As of today, that critique by Forbes blogger Larry Downes had more than 2.1 million page views. His next most popular post -- just 14,683.

Then earlier this week, Wall Street number crunchers got into the act. A Bloomberg story reported that Best Buy would be an attractive candidate for a leveraged buyout.

"'Now would be the time, if I were private equity, to be dusting this off,' Joe Feldman, a New York-based analyst at Telsey [Advisory Group], said in a telephone interview. 'They generate a ton of free cash. From a valuation standpoint, it does look like an attractive candidate for a takeout.'"

A big disappointment in the December sales results appeared to have the potential to throw the company's future into question. But investors are pleased with the outcome. Best Buy shares closed up 3.3 percent, after rising as high as 5 percent.

Investors pointed to indications the company picked up market share during the holidays, and expressed relief that the company did not reduce its profit outlook for the year.

As David Strasser of Janney Capital Markets put it, "after being hit hard through 2011, this provides some sense of stability ...."

About Paul Tosto

Paul Tosto

Paul Tosto writes the Big Story Blog for MPR News. He joined the newsroom in 2008 after more than 20 years reporting on education, politics and the economy for news wires and newspapers across the country.

January 2012
S M T W T F S
1 2 3 4 5 6 7
8 9 10 11 12 13 14
15 16 17 18 19 20 21
22 23 24 25 26 27 28
29 30 31        


Master Archive