Same-store sales for the all-important holiday quarter declined 2.4 percent, a deterioration from December trends of down 1.2 percent. The deterioration was widespread as same-store sales worsened in all categories.
There are several challenges for Best Buy.First, the size of the store footprint is simply too big as more and more consumer electronics sales shift online.
And it certainly does not help that Amazon has a tax advantage (for now) and offers cheaper products. Price transparency is a hurdle as price comparisons are just a click away on smartphones.
Not to mention that Amazon turned up the heat this holiday by encouraging shoppers to scan prices at physical stores on smartphones only to offer further price discounts if the consumer left the store to shop online.
I am guessing Best Buy does not approve of consumers using stores as a showroom, but that seems to be the reality. And while the company calls out customer service as a point of differentiation, I have to wonder if they acknowledge what is happening (just a little) as they guided for same-store sales declines of 2 percent to 4 percent this year.
Best Buy's Solution For Now
Best Buy also announced Thursday that it will close 50 big box stores in the U.S. this year, a move in the right direction. The question is: how many large stores do we really need and can the company close stores quickly enough as leases roll off?
But it is a start. The company also plans to reduce $800 million in costs by 2015 so the company can invest in transforming its business (remodels, more mobile stores, invest in pricing). This includes corporate staff reductions, fewer consultants, IT savings, and supply chain efficiencies to name a few. My question? If there was so much fat hanging around why has it been hanging around this long?
Best Buy has gone through cost-cutting initiatives in the past, and in the past the Street rewarded the stock. However, this time is different. With prolonged same-store sales declines and no sign of this trend changing anytime soon, cost cuts just won’t “cut it.”
Stacey Widlitz is the President of SW Retail Advisors Inc. She has worked at UBS, SG Cowen, Fulcrum Partners and in 2005 was one of three analysts to launch the Research Department at Pali Capital, where she covered Retail and Home Video for 5 years.