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Is Best Buy The Best Buy?

posted 19 Nov 2013, 15:21 by Mpelembe   [ updated 19 Nov 2013, 15:22 ]


Reuters Business  Report - Best Buy is in the thick of a turnaround, which the stock price alone says is working.

In the past year company shares have been on fire, ahead of its third quarter earnings report, rising nearly 270 percent.

This after CEO Hubert Joly took the helm in August of 2012 amid bloated costs and shrinking market share as online retailers undercut them on price.

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The consumer electronics chain's turned a third quarter loss into a profit and beat Street estimates. Yet the stock took an over eight and half percent nosedive in mid-day trading.

It seemed to be a knee jerk reaction to the company's warning that, to match rivals on price during the holidays, margins will be under pressure. Brian Nagel of Oppenheimer.


"I just think you have people with some big gains Best Buy for the year. They're taking them right now maybe out of a little concern with some of the commentary around price promotions around the holiday. That's absolutely nothing new for the consumer electronics space and I think Best Buy actually could benefit from some of these price aggressiveness through the holiday because they're very well positioned to lead it."

Even Best Buy's critics give the new management credit for making progress by cutting headcount, growing sales and establishing a store within a store to better use their large retail spaces.

The naysayers note, however, there's the issue of showrooming--when customers come to look at products but buy for less online. And that trying to compete with online retailers like Amazon which has lower costs than a brick and mortar store means a full turnaround can never be fully achieved.

Nagel disagrees.


"You're still going to have that customer that's going to come to Best Buy stores and for whatever reason look at the product and not buy at Best Buy. But if Best Buy is now price matching Amazon, price matching other online type retailers, I think that's going to really going to encourage more and more that consumer to shop, not only to come to Best Buy stores but to transact at Best Buy stores as well."

He and other believers in the turnaround also say that Best Buy's online sales are growing. And Amazon can't match Best Buy's buying power with vendors, as the world's biggest consumer electronics chain, giving it a major leg up.