Best Buy ready to catch tablet fever sales

  • Article by: THOMAS LEE , Star Tribune
  • Updated: October 26, 2011 - 7:36 AM

The retailer expects big sales of iPads and Kindle Fires. But some analysts wonder if tablets will steal sales from other products.

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At the Best Buy store in Eagan, Brian and Rebecca Eichenberger were shopping for a new laptop when they saw the Ipad 2 display center and started thinking about buying a tablet also.

Photo: Richard Tsong-Taatarii, Star Tribune

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Best Buy Co. Inc. has endured a rough year: falling same-store sales, anemic stock price, weak economy. But the Richfield-based consumer electronics giant sees some good things at the end of the tunnel -- and they look distinctly like an iPad 2, Samsung Galaxy and Kindle Fire.

As the key holiday shopping season approaches, Best Buy has spared no expense in readying itself for the expected tablet onslaught. The retailer has spent millions creating its Tablet Central concept in stores and training employees on how to sell the devices and answer consumer questions. Though Best Buy plans to cut its seasonal hires by half, the company is diverting more full-time "Blue Shirts" toward tablets.

Beginning with the first iPad in 2010, tablets have captured the imagination of consumers by combining the mobility and operating system of a smartphone with the viewing pleasure of a PC or even flat screen TV, making the device a ideal venue to watch movies, play video games, or read newspapers and magazines.

Best Buy fully expects tablet mania to last well beyond the holidays, especially as heavy hitters like Microsoft join the fray in 2012, with its Windows 8 operating system. Global sales of tablets will hit 63.6 million units this year, a 261.4 percent increase from 2010, according to research firm Gartner Inc. That number will grow to 326.3 million units by 2015, the firm said.

"I see tablets as increasingly important" to Best Buy's overall strategy, CEO Brian Dunn told the Star Tribune. "We're already thrilled with sales of iPads. We're going to see all of the big plays in the world play in this space. Choice is going to be very, very important. And Best Buy stands for choice."

But some analysts wonder if tablets will siphon away sales from other categories like laptops, e-readers and desktop computers. In addition, strong tablet sales may not be enough to offset general weakness in consumer electronics.

"Clearly, tablets will have an impact," said Stephen Baker, vice president of industry analysis for the NPD Group Inc., a research firm in Port Washington, N.Y. "But it will be tough to see what kind of impact if flat screen TVs and PCs are down."

"Best Buy is the biggest [consumer electronics retailer] so they need to be the leader in the category," he said. "They need to be a demand stimulator. Things would be clearly worse if you didn't have tablets."

Indeed, tablets have been one of the few brights spots for Best Buy this year. Last month, the company said second-quarter sales at stores open for at least a year, a key metric for retailers, fell 2.8 percent: Tablets, appliances and e-readers generated positive comp sales growth while televisions, gaming, digital imaging (cameras) and physical media continued to fall.

For Best Buy, the tablet category is finally starting to offer a real choice to the iPad, which is why the retailer decided to roll out Tablet Central. The first tablets, which were equipped with Google's Android software, fell by the wayside because they did not offer the content -- apps, music, movies -- that Apple's iPad offered, said Scott Wallace, Best Buy's senior director of merchandising for tablets and e-readers.

Hewlett-Packard's TouchPad was a flop; after just a few months on the market, Best Buy slashed its price to $99. Samsung's Galaxy has been the strongest competitor to iPad to date but suffers from a "weak Android ecosystem," Gartner said.

"This is a lesson for any manufacturer," Wallace said. "You need to create a whole ecosystem. It's much more about the content than it is the hardware, specifications, speed [of the device]. Apple made a very good move back in the early 2000s with iTunes. [Apple CEO Steve] Jobs had a long-term vision: build out an ecosystem that can deliver content, that can work on all of these devices. "

However, Android-powered devices are coming on the market with a much better array of apps and content, Wallace said. And of course, there's Amazon's recently launched $199 Kindle Fire, which some analysts say could pose the strongest challenge yet to the iPad.

"Does it have the potential to be disruptive? I think [Amazon CEO Jeff Bezos] said it well, they are taking premium products and pricing them competitively," Wallace said.

For Best Buy and other retailers, the real question is whether tablets will grow the category or simply cannibalize sales from other devices.

Forrester Research predicts tablets will steal share from PCs, laptops, netbooks, portable game players, and e-readers. According to the firm's research, tablet buyers are spending less time on their PCs and laptops, which means they can go longer before purchasing newer-generation computers, assuming if they even have the money to buy more technology.

"The next generation of tablet owners is enthusiastic about all kinds of gadgets, but their reality is constrained by lower incomes and stricter budgets," Sarah Rotman Epps, a Forrester analyst, wrote in a report.

Best Buy executives, however, are confident that consumers will make room in their lives and budgets for more than one device. Tablets, for example, are great for consuming content "but do not necessarily answer consumers' needs on productivity" like laptops and PCs, said Wendy Fritz, senior vice president of merchandising for computing.

"I don't think that mythical device [which does everything well] exists," Fritz said.

Wallace says the Kindle Fire is foremost an e-reader, which happens to also offer music and movies. And because it's priced so low, consumers could eventually trade up to higher-priced devices like iPads, he said.

In the end, though, Best Buy will benefit the most from tablets if the retailer can sell related accessories and services. For example, Geek Squad techs can help consumers link their multiple devices at home using Mi-Fi Internet connections.

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  • PROJECTED TABLET SALES

    Saturday October 22, 2011

    Worldwide unit sales of tablets by operating system (in thousands)

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