Is Best Buy Showing Signs of Strain?

By Roger Baettig | January 31 2013 3:32 PM

Reuters

Best Buy Co. Inc. is expected to report full-year EPS of $2.49 on revenue of $49.26, compared with a profit of $3.64 a share on revenue of $50.71 billion in the prior year.

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Showrooming has pulled down Best Buy’s (NYSE:BBY) sales over the past year, and the tough competition from Internet retailers has forced the company to rethink its business model and its future. The Canadian Press reported that Best Buy shuttered 15 of its approximately 230 brick-and-mortar locations in Canada on Thursday, which will put 800 employees out of work.

Best Buy has seen its shares lose 50 percent of their value in the past year as the practice of showrooming has dragged down same-store sales. Electronics shoppers are increasingly using the retailer’s stores to examine and test products before purchasing them from cheaper Internet companies like Amazon (NASDAQ:AMZN), and this tactic has contributed to a drop in same-store sales of 4 percent in the last nine months of 2012.

At a November meeting with investors, the company’s new Chief Executive Officer Hubert Joly outlined a plan to reduce costs, shrink stores, and improve its website that was met with skepticism from shareholders, who believed that the measures were incomplete. The offer to take the company private that Best Buy founder Richard Schulze is expected to make on February 1 seems like a more viable option to shareholders, according to The Wall Street Journal.

However, according to company spokesman Christopher Bennett, Best Buy was not forced to close stores because of competitive pressure from Internet retailers. He said that the decision was based on customers’ preferences for smaller stores instead; the retailer’s Future Shop locations will be one-quarter the size of its current brick-and-mortar stores. Best Buy acquired the consumer electronics retailer in 2001 for 580 million Canadian dollars.

“This is the first phase of a larger transformational strategy,” Bennett said. “There’s going to be much larger multichannel component” that will include online and mobile shopping. “It’s a resizing of the footprint,” he added. “It’s really setting in motion proactively how we stay healthy and how we enable us to grow five years out.”