Best Buy Co. Inc. has discovered that consumers care less about getting the hippest new gadget than they do about getting a good deal on a laptop or flat-panel TV.
The Richfield-based company said Tuesday that sales and profit slid in the third quarter as consumers headed to lower-priced competitors for televisions and video games. Meanwhile, sales of more expensive 3-D and Internet-ready televisions haven't lived up to expectations.
Given the competitive pressures, the nation's largest consumer electronics retailer chopped its annual profit forecast, which sent the stock tumbling to its worst loss in more than eight years. Shares finished the day down nearly 15 percent, at $35.52, after earlier dropping as much as 18 percent. It was the day's biggest decliner on the New York Stock Exchange.
"Essentially, Best Buy has been willing to give up market share in order to expand gross margin," said David Brennan, co-chair of the Institute for Retailing Excellence at the University of St. Thomas. "They're not willing to make those kinds of price cuts -- and the Wal-Marts, Targets, Sam's Clubs and Costcos of the world are eating their lunch."
Brennan noted that the consumer electronics category -- which includes televisions, digital cameras, e-readers and MP3 players -- dropped from representing 39 percent of Best Buy's business a year ago to 36 percent today. The company, instead, has put more emphasis on higher-margin items, such as motion gaming systems and high-tech televisions.
Best Buy's disappointing results came as the Dow Jones industrial average surged to its highest mark this year, amid reports that retail spending is increasing and businesses are feeling more confident.
The Commerce Department said Tuesday that retail sales rose 0.8 percent in November, riding the biggest jump in department store sales in two years.
Best Buy executives said they were disappointed in the results, but that they weren't going to cut prices willy-nilly just to bring shoppers into the store.
