This undated image provided by Best Buy, shows Amy Poehler on the set of the Company's Super Bowl commercial. Best Buy's 30-second ad in the first quarter stars Amy Poehler, star of NBC's "Parks and Rec," asking a Best Buy employee "lots of questions."
Uncredited, Associated Press - Ap
Best Buy banks on Super Bowl to bump up TV sales
- Article by: THOMAS LEE
- Star Tribune
- February 2, 2013 - 9:09 PM
The Super Bowl, the most watched television event of the year, always has been a critical time for Best Buy because of the demand for flat-screen TVs. But the Richfield-based retailer may have extra incentive this year to pad its sales, given a possible buyout offer from founder Richard Schulze this month.
For the first time, the company has run Black Friday-like "doorbuster" sales in January that cut in-store and online prices by up to 40 percent on flat-screens, including larger models that have grown popular in recent years. A strong finish to the fiscal year can help investors win a higher price from Schulze.
Schulze was supposed to submit an offer in mid-December, when the stock traded below $12 a share. But the company wanted to extend the deadline for a bid until Feb. 28 so that Schulze can review holiday and January sales, which include the weeks leading up to the Super Bowl.
"Best Buy has a huge focus on big-screen TVs," said Burt Flickinger, managing director of Strategic Resources consulting firm in New York. With attractive profit margins and the opportunity to sell accessories and installation services, "the big-screen pays for itself."
Best Buy recently said sales at stores open for at least a year were flat in December, a stronger-than-expected holiday performance that has helped boost the company's stock more than 36 percent since the end of 2012 to close Friday at $16.11. With Apple Incorporated's stock losing some of its luster lately, investors are growing more confident in Best Buy's prospects even without a possible Schulze bid, said David Strasser, an analyst with Janney Capital Management.
In any case, the company's price tag just got considerably higher for any prospective buyer.
"It's going to take a lot more money to get a deal done," Strasser said.
Best Buy declined to comment.
For Best Buy, though, to really convince Wall Street of its resurgence, the company needs to stabilize its television business, which, along with personal computers, makes up a sizable portion of its $50 billion in annual revenue.
"We remain concerned by the persistent weakness in computing and entertainment," Alan Rifkin, an analyst with Barclays, wrote in a recent research note. "Given Best Buy's dependence on these categories, we will need to see evidence (or, at the very least, a bottom) before we become incrementally more positive."
Since its founding in 1966, Best Buy has successfully ridden advances in home entertainment technology -- from VCRs and DVD players to digital cable and TiVo -- to sell large numbers of televisions.
Competition from discounters
But in recent years, new innovations like 3-D and Internet-enabled boob tubes have failed to impress consumers, analysts say. Throw in fierce competition from discounters like Target and Wal-Mart and Internet retailers like Amazon, and TVs suddenly look more like commodity goods than state-of-the-art technology.
IHS, a market research firm, estimated that flat-panel TV shipments nationwide fell 5 percent last year to 37.1 million units from 39.1 million units in 2011, the first annual decline in the product's history. IHS also expects shipments will drop to 34 million units by 2016.
Furthermore, the sales declines combined with intense competition have eroded profits. Televisions generated a gross profit margin of 19 percent last year, compared with 27 percent in 2007, according to a report by JP Morgan.
Weak TV sales are a major reason why Best Buy has struggled to grow sales. The company was only able to avoid a decline in same-store sales last December because of strong growth in newer categories like smartphones, tablets and e-readers.
But there is a bright spot in the industry: larger flat-screen TVs, those with screens of 50 inches or more, have performed well. Unit sales of these large flat-panel televisions during holiday shopping season jumped 46 percent over the same period last year with revenues rising 19 percent, according to the market research firm NPD Group Inc.
The boom in large-screen TVs has been a godsend to traditional brick-and-mortar stores like Best Buy, said Stephen Baker, an NPD analyst. Consumers would rather visit a store to buy such a large, expensive item rather than blindly purchase one online, he said.
"As TVs have gotten larger and larger, consumers are going back to the retail stores," Baker said. "They want to look at them and ask questions."
Best Buy, which has been trying to shift more of its floor space to more profitable, higher-growth merchandise, has invested heavily in large-screen TVs. At the company's new-generation Connected Store format, consumers can visit the Magnolia Design Center, where employees help them design pricey home theater systems, including televisions, speakers, Blu-Ray players and even furniture.
For consumers who can afford such luxury, buying a $2,000, 70-inch flat-screen TV might seem like a worthy investment, analysts say, especially to watch a once-a-year event like the Super Bowl.
"We fully expect strong sales of TVs before the Super Bowl," Baker said. "I think everyone is excited about the possibilities."
Thomas Lee • 612-673-4113
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