For Best Buy, holidays were good enough

  • Article by: JACKIE CROSBY , Star Tribune
  • Updated: January 6, 2012 - 10:20 PM

A slow week before Christmas held sales back in December, but online sales rose.

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Television sales were not a bright spot for Best Buy in December. Tablets and e-readers were the hottest sellers for the holidays, the retailer said.

Photo: Mark Humphrey, Associated Press

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With competitive pressure from all sides and no "wow-me" product of its own, Best Buy Co. Inc. eked out a December holiday season that Wall Street could live with and that won't affect its profit picture for the year.

CEO Brian Dunn said in a statement Friday that traffic was "lower than expected until the last week before Christmas," leading to sales that were slightly lower than the Richfield-based company had forecast.

But the nation's largest consumer electronics retailer said it picked up market share from its rivals in one of the most important months of the year, news that helped boost shares more than 3 percent to close at $24.22.

"I'm not surprised to see them claw back market share this year," said Peter Keith, a retail analyst with Piper Jaffray & Co. in New York. "They've taken a more promotional stance to win some of that share back."

Same-store sales fell 1.2 percent compared with a year earlier. The drag came from stores in Canada and the Europe. Same-store sales in the United States, where the bulk of Best Buy stores are, fell 0.4 percent.

As consumer electronics have become more affordable and ubiquitous in recent years, Best Buy has lost sales to Amazon.com, Wal-Mart, Costco and Target. Last holiday season, the company acknowledged losing TV sales to big-box stores, as well as retailers such as Staples and Office Depot.

Tablets and e-readers were the hottest sellers of the holidays, with sales rising by low triple-digit percentages. Best Buy's continued focus on all things mobile came through as well, with mobile phone sales jumping 20 percent from a year ago. The company highlighted strong sales of appliances, a high-margin category, perhaps taking business away from Sears. Online sales shot up 26 percent.

Yet, it's still a mixed bag for the retailer, as gains in those categories were dragged down by losses in gaming, cameras and TVs. December sales make up roughly half of the quarter, Keith said. January accounts for about a third, as it's a key time for gift cards and TV sales, as people upgrade for the Super Bowl.

"They really have to find a major differentiator that adds value -- either perceived or real -- that will steal customers from those other guys," said Robin Lewis, CEO of the Robin Report. "They're struggling with that. They need more proprietary brands, more exclusive brands -- something to steal share from one's competitors or to get their customer to buy more and more often."

Those exclusives are becoming ever more cutthroat. Apple, a longtime staple for Best Buy, is set to open a branded store inside Targets later this year, according to a posting Friday in the technology blog AppleInsider. Officials at Target Corp. declined to comment on the report.

Third-quarter profit down

The mild December showing comes on the heels of a recent rough patch at Best Buy. Third-quarter profits fell 29 percent, and the company got a black eye from consumers four days before Christmas when it said it wouldn't be able to fill orders on laptops, TVs and iPads. Best Buy said later it affected less than 1 percent of orders.

Dunn took responsibility for the online orders snafu Friday in his "Whiteboard" blog, saying the company was making "amends with customers whose holidays were made less happy because of our mistake" and working to avoid future problems.

Dunn also said the company's business model remains strong. He defended the company's focus on the store experience, quoting an industry report that shows 80 percent of consumer electronics revenue still moves through physical stores.

Best Buy wasn't the only retailer soldiering through a tough holiday. Deep discounts defined the season, a sign that consumers in the post-recession world still aren't ready to pay full price.

Sears Holdings Corp. decided to close 120 Sears and Kmart stores around the country. Kohl's, Target and J.C. Penney cut their holiday-quarter profit outlooks after disappointing December sales.

Best Buy's fortunes are driven by new product cycles, which aren't working in Best Buy's favor right now, said Piper Jaffray's Keith.

Lewis said Best Buy's footing will remain a bit less steady than its competitors until the next big thing comes along, particularly given an industrywide "race to the bottom on price."

"Wal-Mart and Amazon can spread their earnings challenges across many different categories," Lewis said. "Best Buy doesn't have the breadth to be able to share the margin pressures."

Staff writer Jim Buchta contributed to this report. Jackie Crosby • 612-673-7335

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