Best Buy's Stock Price Falls to a Millennium Low

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Best Buy storeMore black days are ahead for the blue shirts of Best Buy (BBY).

Shares of the consumer electronics giant were crushed on Tuesday after another disappointing quarter. The stock sunk to levels that Best Buy investors hadn't seen since the 1990s. Then again, it's a safe bet that many of those shareholders wish that they could go back in time to relive the chain's glory years.

Unfortunately, the future doesn't look very encouraging.

Let's go over some of the reasons why Best Buy has fallen to a millennium low -- and why things may get worse.

1. Positive comps and margins are inversely related

CEO Hubert Joly has highlighted two problems that need mending at Best Buy. The chain needs to turn its negative same-store sales into gains. It also has to reverse the problematic trend of declining margins.

The problem here is that it's hard to fix one without making the other worse.

Lowering prices to make the chain competitive with Amazon.com (AMZN) and other cheaper retailers may help drum up sales. The company can overcome the negative comps in volume if electronics shoppers once again see Best Buy as a price leader. The problem with that is that is that gross margins will get clobbered.

The company's brazen decision to allow price matching in some product categories this season may help it boost sales by keeping tire kickers from leaving the store without buying what they want. But it's going to be at the expense of mauling its margins.

It's not Joly's fault. He's only been there for 11 weeks. It's not Best Buy's fault. Online retailers have meager overhead costs, and can pass on those savings to deal-seeking shoppers.

The equation cuts the other way, too. If the plan to boost margins involves trying to get customers to buy more of their insurance plans and services, those same gouged shoppers will want to buy online so they don't get had in person again.

2. Exclusivity won't save the day

A popular way for brick-and-mortar chains to beat online retailers is to offer exclusive merchandise. You won't find IKEA furniture other than through IKEA. Target (TGT) is a great mainstream example. The "cheap chic" department store chain teams up with home and apparel designers for product lines that can only be bought at Tar-jay.

Best Buy wants to play in that sandbox.

During Tuesday's conference call, Best Buy discussed its plan to cash in on Microsoft's (MSFT) Windows 8. Best Buy is stocking 45 PC models that can only be purchased at Best Buy. It may sound like a good plan. The showrooming impact is tripped up because that model can't be priced against the same PC at other retailers. However, these PCs are merely spec sheets. If a computer with similar specs can be had for less elsewhere -- and it probably can be -- Best Buy won't get the sale.

As Best Buy continues to shrink in relevance, manufacturers will have less reason to give a hot product only to Best Buy. The chain will get the leftovers in niches that are commodities anyway.

If Best Buy could have set itself apart with proprietary consumer electronics don't you think that it would have done so with its own Insignia lines?

3. Best Buy is practically groveling

"Encourage everybody to shop at Best Buy between now and Christmas," were Joly's final remarks to analysts during Tuesday's earnings call. "And as you shop there, please give us feedback on your experience, both the good and the bad as we're focused on driving the customer experience now."

Really?

"I look forward to your purchases and your feedback."

In that order?

Coming from any other company this would come off as an endearing sendoff heading into the telltale holiday shopping season. But given Best Buy's horrendous fundamentals these days it's hard to tell. If "getting analysts and their families to spend more money at Best Buy" is part of the plan to turn comps positive, don't be surprised if the feedback proves to be as negative as the store-level sales growth will be.

Motley Fool contributor Rick Munarriz does not own shares in any of the stocks in this article. The Motley Fool owns shares of Amazon.com, Best Buy, and Microsoft. Motley Fool newsletter services have recommended buying shares of Amazon.com and creating a synthetic covered call position in Microsoft.








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8 Comments

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gogayu

BYE, BYE... BEST BUY! Good Riddance.

November 26 2012 at 3:59 PM Report abuse rate up rate down Reply
gogayu

I stopped buying there when my purchases were not credited to my rewards account. Three times I had to go thru hoops to get the credit BUT found out they "expire"... I have spent $5,000-8,000 with Best Buy( "OXIMORON") and never had the pleasure of using my rewards. I'll open a bottle of Champagne the day BB goes under!.

November 26 2012 at 3:58 PM Report abuse rate up rate down Reply
Joseph B. Rifkin

THE REASON BEST BUY IS GOING DOWN THE DRAIN IS BECAUSE THEY STARTED KISSING MUSLIM ASS. I CAN'T WAIT FOR THEM TO FADE OUT OF AMERICA.

November 25 2012 at 1:20 AM Report abuse +1 rate up rate down Reply
1 reply to Joseph B. Rifkin's comment
gogayu

Another Moronic Excuse for a human hiding "under" the American Flag. Hey Bozo, it is a global world and you need to get your head out of your ass. It wasn't long when your poor white trash ass was, oops, still is, MOST hated specises amongest humanity.

November 26 2012 at 3:56 PM Report abuse +1 rate up rate down Reply
xgomazx

Heh. Not surprising.
Way overpriced on many items. And the customer service my family has had with them on various issues when there has been a problem leaves MUCH to be desired..
In one case my son had a stereo installed in his car.
The guy that connected used not only the wrong connector But modified that so it would kinda sorta work.
Obviously there was a problem.
I looked at it and saw right away what was done but figured since Best Buy was paid for the installation. and the installation was done wrong. then they should be the one to fix it When he brought it back. The guy tried to charge him for fixing the wrong connector.

When we argued about it. the guy said that there was nothing wrong with using the connector he did and that the guy that did it was only trying ot save us money as the right connector cost more.

The wrong connector cost $.15. The Right connector cost $.3.00
Now its nice that someone tried to save my son money. But the overall price he paid for the stereo and installation was over $500.
On a $500 transaction your going to shortchnge an installation for a $3.00 part?

I could go on and on with Best buy. But there is a limit here.
they deserve any bad news they get

November 22 2012 at 12:09 PM Report abuse rate up rate down Reply
thescot

Worst buy should just disappear forever. All of the bait and switch, ridiculous return policy, and employess who don't know anything except how to se3ll warrenties is biting them in the butt. If they never recover it will be too soon.

November 21 2012 at 3:20 PM Report abuse rate up rate down Reply
admin@EmergencyPlumbingLasVegas.com

Where Best Buy DOES have it over their competition is customer service.

I recently returned a router that stopped working. It was within the 2 year warranty period (no extended warranty). The company no longer sells that model, so they gave me the upgraded model. And get this, the new model sells for less than the old model, so they actually gave me a refund of $11 to get the upgraded model. Try THAT at Amazon.

Now that may not be good initially for their bottom line, but it works wonders for customer loyalty!

And, btw, Best Buy is much less expensive than Fry's Electronics.

http:EmergencyPlumbingLasVegas.com

November 21 2012 at 1:43 PM Report abuse -1 rate up rate down Reply
papadukes328

Turn Best Buy into a wharehouse like Amazon,,, fill out an order slip and get ur merchandise delivered to you.

November 21 2012 at 12:33 PM Report abuse -1 rate up rate down Reply
1 reply to papadukes328's comment
xgomazx

They need to rename it to "Not Such a Best Buy" first.

I've yet to see anythign they sell I couldnt ge cheaper anyplace else.
The only reason I've gone there is out of pure convienience

November 22 2012 at 12:12 PM Report abuse rate up rate down Reply