Apple Didn't Kill Best Buy
Feb 2nd 2013 3:00PM
Updated Feb 3rd 2013 2:00PM
Years from now, when fiscal forensics experts begin analyzing the chalked outline of Best Buy's remains, it'll be easy to see fingers pointing at Cupertino.
"Apple did it," the masses will accuse. It was Colonel Cook in the Library with the iPad!
But that's not entirely fair. Apple definitely played a part in the demise of consumer-electronics retailing, but dusting the scene will uncover more than just the tech giant's fingerprints.
In the short term, we have BB&T Capital Markets analyst Anthony Chukumba, who upgraded Best Buy this week, boosting his firm's rating from "hold" to "buy" and introducing a $21 price target -- on the premise that the recent weakness in Apple will be a windfall for Best Buy.
I covered the upgrade earlier, and while I raised my doubts about the call, I didn't mention the biggest reason for Best Buy's grim fate, regardless of what happens to Apple.
The great digital divide
Is Chukumba right that the success of the Apple Store will eat into traditional catch-all superstores? Yes. Is he spot-on in assuming that chunkier margins are to be had for retailers as Android gains market share? Absolutely.
However, none of this means Best Buy will be around in five or 10 years.
Amazon.com may have exposed Best Buy's prices as too high, but it's not even the showrooming trend that will be the cause of death when the fiscal crime lab is through with this one. No, the biggest reason for Best Buy's fading relevance is that media distribution has gone digital.
It's not that Apple Stores are cooler. It's not that Amazon and other online retailers have the infrastructures in place to deliver lower prices than a physical storefront. Folks are just simply consuming video, music, and software directly into their devices, and that means that it will be curtains for Best Buy's CDs, DVDs, video games, books, and software.
Toxic sticker shock
These may be low-ticket items, but they're the reasons folks went to Best Buy more than just once or twice a year. Buy a fridge, and ideally you won't need one for another decade. Your TV or digital camera may not hold off their obsolescence as long, but you should still be good for a few years.
Media, though, lives on a different cycle of repeat purchases. Buy the new Lumineers CD, and you could still go back to Best Buy the following week to pick up Ted on Blu-ray. Buy the new George Sauders book, and you may still find your way back to the store to get Dead Space 3 when the video game hits the market on Tuesday.
Sure, you could. But we're cutting out the retail middleman these days. Zapping physical media into cyberspace is the reason store traffic is on a downward spiral at Best Buy.
It's true that Apple was the kingpin of this revolution. The iPod crushed CD sales, and it's not a coincidence that video game and movie sales began to falter when the iPhone and iPad were introduced. But the trend would continue even if Apple keeled over tomorrow. Android -- and whatever platform rises next -- will simply keep repeat customers away.
Do you really think that there's any turning back now?
You can blow down a house of bricks ...
Some models may crumble sooner than others.
GameStop has revised its comps guidance lower four times over the past year as the push to digital dries up demand for its games and the supply of the used physical games that it dresses up for resale at chunky margins. Barnes & Noble has already announced that it will follow Blockbuster in closing far more stores in the near future than it would dare to open.
GameStop and Barnes & Noble have digital initiatives in place to try to offset some of the sting of the download revolution, but even if those attempts are enough -- and they won't be -- the physical store model is toast.
Why would Best Buy be any more fortunate? Sure, the company sells the devices that play digital media, but that's pretty much it. The content creators and digital marketplaces take over from there, and the hardware upgrades will largely fall into the arms of the carriers and access providers that make the connections possible.
Apple didn't kill Best Buy, and that's why Best Buy will continue to suffer. Showrooming didn't kill Best Buy, and that's why sales will continue to fall, even now as Amazon is collecting sales taxes in a growing number of states.
Digital killed the physical star.
Respect the crime scene, please.
Another smart digital revolution play
The mobile revolution is still in its infancy, but with so many different companies it can be daunting to know how to profit in the space. Fortunately, The Motley Fool has just released a free report on mobile named "The Next Trillion-Dollar Revolution" that tells you how. Inside the report, we not only describe why this seismic shift will dwarf any other technology revolution seen before it, but we also name the company at the forefront of the trend. Hundreds of thousands have requested access to previous reports, and you can access this new report today by clicking here -- it's free.
The article Apple Didn't Kill Best Buy originally appeared on Fool.com.Longtime Fool contributor Rick Aristotle Munarriz has no position in any stocks mentioned. The Motley Fool recommends Amazon.com and Apple and owns shares of Amazon.com, Apple, and GameStop. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
Copyright © 1995 - 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.