BBY - Best Buy

[Uccmal]

Hi Junto, nice summary.  I added more 2014 leaps a few days ago.  Al.

[Junto]

Thanks Myth. The next post I am going to dig more into the valuation of BBY. Given the free cash flow, buy back, and stable revenues, this company is cheap at the current price. I strongly believe the model is not going to be flipped on its head and there is value to having the bricks & mortor and e-commerce activity.

 

 

[ExpectedValue]

Thanks Myth. The next post I am going to dig more into the valuation of BBY. Given the free cash flow, buy back, and stable revenues, this company is cheap at the current price. I strongly believe the model is not going to be flipped on its head and there is value to having the bricks & mortor and e-commerce activity.

 

Have you actually collected empirical data which affirms your belief that the "model is not going to be flipped"?

 

To me, that would be the key question when looking at Best Buy. On page 116 of the 10-K, you have domestic revenue broken out on a percentage basis by category:

 

Consumer Electronics - 37%

Home Office - 37%

Entertainment - 14%

 

I would try to drill down into each category and see how Best Buy's market share has shifted.

 

What's troubling is this:

 

"Indeed, Amazon's electronics and nonmedia revenue rose 66% to $18 billion last year, helping it lift market share in different segments. Its share of LCD TV sets, for instance, nearly tripled, to 3.7% at the end of 2010 from 1.3% in 2007, estimates research firm Traqline. Its share of portable audio devices rose to 11% from 4.6% in the same period."

 

If Amazon is indeed taking share in areas like consumer electronics and entertainment, Best Buy is probably losing share. If you read any of the previous communications by Best Buy execs, they mention that they will going forward focus more on market share and less on profit margins (...so they're probably losing share). You could possibly see margins erode going forward which could be an issue if top line growth does not expand. You would likely end up with a shrinking cash flow figure each year going forward which makes trailing free cash flow and buy back figures rather meaningless.

[Junto]

TariqAli. Check out this posting regarding Best Buy and Amazon. I think it addresses some of your broader claims. The Case for Best Buy, Part III: The Amazon Threat: http://seekingalpha.com/article/287267-the-case-for-best-buy-part-iii-the-amazon-threat

 

You never value a company solely on its historical performance. The historical performance is a proxy. Gross Margins have really been stable, the largest increase has been SG&A .

http://4.bp.blogspot.com/-aoP9V--6nhw/TvqniRwIQfI/AAAAAAAAApI/4KctcedqaHk/s1600/%2524BBY+Income+Statement.jpg

 

*Note a lot of the revenues and earnings come in the 4th quarter. If you are talking a seasonal business, this is a prime example.

 

FCF continues to be strong and management has a solid performance history in cash management. The stock is trading at a really high FCF yield. Even with a decrease in margins, the business is cheap. The instrinsic value of its future cash flows are being significantly discounted based on my research.

 

 

 

[ExpectedValue]

I don't really see how my point was meaningless.

 

All you really did was post a sheet which shows financial metrics from the past few years without any attention to the underlying business. There's a reason why the business is trading at a low P/E and you don't seem to address that.

 

You say that margins have been strong, but if you read what their executives say, that's not going to happen going forward. I mean just read it here: http://www.startribune.com/business/135501703.html

 

You say that gross margins have been really stable, but that's actually incorrect.

 

Quarter Domestic Same-Store Gross Profit YoY % Change

3Q10 -1.3%

4Q10 -2.1%

1Q11 -5.0%

2Q11 -4.7%

3Q11 -4.3%

 

To me, that looks pretty troubling. I think the way you are organizing your data is obfuscating this fact, creating false precision in your analysis.

 

I just don't think you are weighing the future properly here. You should spend more time analyzing Best Buy's spot in their industry and the market share of their business segments going forward to get a feel for how capital allocation will move going forward. If they reinvest in a business that's on a secular decline they'll see returns on capital drop going forward which will hinder the overall valuation.

 

 

[Uccmal]

I just don't see the threat from Amazon in electronics getting all that severe.  I don't feel comfortable buying products that actually operate online or from a catalogue in past life.

 

My understanding of Amazon's supply chain is a follows:

1) buy the product online.

2) amazon has it's supplier or manufacturer send the product out directly

3a) product is fine, customer is happy, amazon and supplier book profits

3b) product is broken

4) customer returns it at cost to am. Or supplier or both. 

5) customer gets a refund - back office cost for both A and supp.

5b) customer gets new product at cost to A and supp.

 

At stage 1 and 2 Am. beats Best Buy on Profit margins or price.

3b-5b) best buy beats A on costs - bulk shipping is cheaper for BB than individual courier for A.

 

5b) customer at BB gets immediate satisfaction with a new product.

 

In the past couple of years I have bought a router, Mac, iPad, BB, HDTV, laptop, WDTVLive unit, wifi over electrical devices, microwave, all from Best Buy/future shop.

 

I like to go in and poke and look at the toys before I buy, sometimes a few times.  I figure I make up the majority by far in this market segment.  I have no qualms about buying and downloading books online, generally from Kobo now, on my IPad.

 

It is not a leap for best buy to compete directly with Amazon in online sales.  Every product in their flyers is available online as well.

 

Then there is the extended warranty thing.  Best buy sells these and to an extent pushes them on people.  I generally don't go in for them, but others do.  Without face to face meeting I don't see extended warranties making up a big part of sales margins for Amazon.  I may be wrong on this having never done a deep dive on Am.

 

Then there is the licensing component: best buy sells iPhones, bbs, and carrier subscriptions under

license.  I haven't done a deep dive on licensing but expect that there are terms involved in these agreements that amazon can't circumvent. 

 

Also, there is the price control issue.  Amazon cannot undercut anyone on price set items such as iPhones, iPads, etc.  Best buy makes some money on these but more on the accessories that sit right next to the product.  When I bought my iPad I bought a case on the spot. 

 

I have a cash flow analysis from September I will post here shortly.

 

 

 

[Guest Hester]

At the seat of your computer you can get on Amazon or EBAY and have a selection of products from literally any product category that exists, short of yahts. I shopped holiday gifts for my entire family just on Amazon. If I were to go to brick/mortar stores to find the kind of selection I needed I would of had to visit at least half a dozen stores, and probably would of wasted a whole day instead of half an hour online. Plus Amazon products are almost always cheaper, since there is no sales tax and the non-existant overhead store costs are passed on to a certain extent.

 

With electronics and home office goods you don't need as much personal time with the product pre-purchase to get acquanted. It's not like shoes or clothes. Most people have probably seen a friend with the phone or computer they are thinking of buying, and don't need the physical store.

 

This business is in a secular decline, and still has to compete with giants like Wal Mart. Past financial results should be taken with a serious grain of salt.

[Guest Hester]

I just don't see the threat from Amazon in electronics getting all that severe.  I don't feel comfortable buying products that actually operate online or from a catalogue in past life.

 

My understanding of Amazon's supply chain is a follows:

1) buy the product online.

2) amazon has it's supplier or manufacturer send the product out directly

3a) product is fine, customer is happy, amazon and supplier book profits

3b) product is broken

4) customer returns it at cost to am. Or supplier or both. 

5) customer gets a refund - back office cost for both A and supp.

5b) customer gets new product at cost to A and supp.

 

At stage 1 and 2 Am. beats Best Buy on Profit margins or price.

3b-5b) best buy beats A on costs - bulk shipping is cheaper for BB than individual courier for A.

 

5b) customer at BB gets immediate satisfaction with a new product.

 

 

How often does 3b actually happen? They aren't shipping eggs, and most of the time the product damages are the shipper's fault. I've bought literally hundreds of goods online from ebay/amazon. I've even bought a few things that have shipped from Korea, and I've never had a product break or get damaged in any meaningful way.

 

Most sellers on Amazon and almost all big sellers on ebay have a 98% or better satisfaction rate. I've never seen a less than 90% satisfaction rate for an Amazon seller, and I've only seen a few under 95%, and they haven't sold many items. If you buy from them you are asking for trouble anyways.

 

So if 3a advantages Amazon and happens over 98% of the time and 3b happens 2% of the time and advantages BBY, which one has the advantage?

[Junto]

I don't really see how my point was meaningless.

 

All you really did was post a sheet which shows financial metrics from the past few years without any attention to the underlying business. There's a reason why the business is trading at a low P/E and you don't seem to address that.

 

You say that margins have been strong, but if you read what their executives say, that's not going to happen going forward. I mean just read it here: http://www.startribune.com/business/135501703.html

 

You say that gross margins have been really stable, but that's actually incorrect.

 

Quarter Domestic Same-Store Gross Profit YoY % Change

3Q10 -1.3%

4Q10 -2.1%

1Q11 -5.0%

2Q11 -4.7%

3Q11 -4.3%

 

To me, that looks pretty troubling. I think the way you are organizing your data is obfuscating this fact, creating false precision in your analysis.

 

I just don't think you are weighing the future properly here. You should spend more time analyzing Best Buy's spot in their industry and the market share of their business segments going forward to get a feel for how capital allocation will move going forward. If they reinvest in a business that's on a secular decline they'll see returns on capital drop going forward which will hinder the overall valuation.

 

I didn't indicate margins are strong...I said stable. If you look at Gross Margin as a % of sales over the past five years; it has been.

 

I don't disagree  that margins will tighten as they try to keep and gain market share. The question is if the business is undervalued given the projected cash flows and earnings. I think the market has overly corrected. I don't think Best Buy is a $50 nor $40 stock. However, I do think it is worth much more than $23.

 

I am going to ponder your comments some more...I don't think it will materially change my thesis as some of your comments have been built into my model for consideration.

 

 

[AZ_Value]

At the seat of your computer you can get on Amazon or EBAY and have a selection of products from literally any product category that exists, short of yahts.

Correction: http://cgi.ebay.com/ebaymotors/MUST-SELL-M2-60-Yacht-Boat-WILL-TRADE-CALL-4014996312-/370570735553?pt=Power_Motorboats&hash=item5647bcafc1  :D

 

In the past couple of years I have bought a router, Mac, iPad, BB, HDTV, laptop, WDTVLive unit, wifi over electrical devices, microwave, all from Best Buy/future shop.

 

I like to go in and poke and look at the toys before I buy, sometimes a few times.  I figure I make up the majority by far in this market segment.  I have no qualms about buying and downloading books online, generally from Kobo now, on my IPad.

 

These are valid points. But they don't really address whether the business is sustainable in its current form, besides your own experience and buying habits.

Just like you, I have bought countless of "stuff", electronics included, the last few years and virtually all of my purchases were made online, mostly through Amazon.com. So who is right?

 

If I was to walk around my office right now I can guarantee you that I'll see quite a few Blackberrys (including mine) but does that really tell me that RIMM isn't facing some tough time ahead? I wouldn't be getting the whole picture if I wasn't looking at how its business is under major attack by AAPL, Android phones and Windows mobile phones.

I think a similar analysis should be done regarding what online retailers like Amazon are doing to BBY's business.

 

It is not a leap for best buy to compete directly with Amazon in online sales.  Every product in their flyers is available online as well.

 

To me, this is actually a pretty good point and I give credit to Best Buy because I really like their website and even though most of my purchases are Amazon purchases, I have used Bestbuy.com many times. And since it doesn't seem like it will be getting easier for them to make their money with their stores with margins contracting, it'll be interesting to see if they make some of that up by increasing their online presence, management should have this as one of their top priority, and again I give them credit because I like their website a lot and they seem to be taking this seriously.

 

I especially like their buy online and pick-up at the store in an hour feature, because it allows me to purchase something on their website and just pick it-up at a Best Buy near me on my way home. It's a great feature I don't get with Amazon. But I reckon if everybody was like me, the company wouldn't like it, as it would be pretty expensive to maintain those big stores so that I can stop by for the 2 minutes it takes me to pick up my new router.

 

3b) product is broken

 

I honestly can't recall the last time I received a broken product from Amazon. And it's not for lack of buying stuff online trust me.

 

I liked BBY a lot the last few years, especially when Circuit City went belly up, but that was end of 2008 I think and at that time it was hard not to like almost everything you looked at.

However, I've forced myself to add one of Buffett's filters to my own and not stray from it, which is that I need to be able to tell what the business will look like 5 to 10 years out with a satisfying degree of certainty. Unless it's an arbitrage or something with an obvious catalyst that I am waiting for. Which is why seemingly cheap companies like BBY and RIMM scare me and I just chose to look the other way.

 

[Viking]

"I liked BBY a lot the last few years, especially when Circuit City went belly up, but that was end of 2008 I think and at that time it was hard not to like almost everything you looked at. However, I've forced myself to add one of Buffett's filters to my own and not stray from it, which is that I need to be able to tell what the business will look like 5 to 10 years out with a satisfying degree of certainty. Unless it's an arbitrage or something with an obvious catalyst that I am waiting for. Which is why seemingly cheap companies like BBY and RIMM scare me and I just chose to look the other way."

 

AZ_Value, I am of a similar opinion. There are many retailers that look very cheap right now: Best Buy, Radio Shack, Sears etc. My batting average has been much higher buying companies with strong moats (when they are out of favour) than buying statistically cheap companies with weak/eroding moats. A good example was purchasing Visa earlier this year when concerns over Durbin drove the share price under $70 (about $100 today). I think anyone who purchased Wells Fargo under $24 will do very well the next couple of years. BRK b's unter $70 also looks to be a great entry point. RIMM and Sears are good examples of the risks of buying companies with deteriorating moats.

 

My strategy this year has shifted a little to really focus on the best run, shareholder friendly companies with strong moats and low debt that are out of favour (versus focusing on stocks that look to be trading at a very low valuation).

 

BBY: I do like how shareholder friendly mgmt appears to be (retained earnings used to pay dividends and buy back stock). The company does not have a huge amount of debt. But I can't wrap my head around how profitable the business will be in 5 years time....

[Uccmal]

Az, I think the people on this board and probably many of your friends are skewed towards believing the online world is the only future.  That is proving not to be the case for many products.  Many don't have the comfort level to buy online.  Others like to kick the tires.  Amazon and it's ilk have taken over where mail order and catalogue used to operate.  The business model is not new in any way. 

 

I think Best Buy meets the 5 year filter okay, partly due to good management.  After surviving 2008/2009, I can't think of any business that can be projected successfully, any longer than 5 years these days. 

 

Everyone's points have given me lots to think about. 

[ExpectedValue]

Al, one thing to be watchful for is your own personal biases when evaluating companies. I think sometimes investors will look at how they see the world/how they act and believe that all customers will act similarly and often that's just not the case.

 

I remember there were some folks on this board who were bulled up on RIMM because they knew people within their family that refused to part with BBM or they knew that their workplace's IT department refused to look at anything non-RIMM. It didn't work out too well for those investors to take such a close-minded view of the world.

 

To me, the question of whether or not retailers will be under threat by the internet is something that should be testable if the investor is willing to gather the requisite empirical data necessary. Basically, you would want to see the number of consumer electronics sold in a market and the break down of the retailers that are selling the goods. Then you could take a look and see how market share is shifting and if it is indeed shifting in favor of internet retailers.

 

Now, what I know is that in 2008 Amazon sold $4,430 in "Electronics and other general merchandise". In 2010 that figure jumped to $10,998, almost a 150% increase in just two years.

 

You could try to argue that the pie (electronics sold) expanded dramatically over those last two years and maybe that's possible. But I would bet that a good deal of it has also come from simply taking share from brick and mortar retailers like Best Buy -- which is why they're having negative SSSs and why their executives are shifting gears away from profit margins to market share.

 

This kind of analysis needs to be done, because if not, you will simply be looking at financial metrics which could be unreliable if going forward the operations of the business erode.

[Uccmal]

Tariq, you have me at an unfair advantage with regard to comments around rimm etc.  I am generally upfront with my positions which shows past mistakes in stark relief.  Your quite clear about your critique of my investments without sharing any of your own (I.e. Sticking your neck out).  I can take it but as I have said you have an unfair advantage.

 

Regarding Best Buy vs. Amzn, Tiger Direct, Conns.  What is very clear is that Amzn does not disclose the other very well.  It is unclear whether they are selling the higher margin items or not, tvs no longer being among high margin. 

 

Being a value investor, what I see with Best Buy is a Company trading at 8x pe, 4x cash flow, slightly above book, that is rapidly reducing share count, with good management.  Their online presence is growing rapidly 20-30% y over y.  They have gone from 0 to hundreds of mini stores, and have been aggressively expanding in Asia. 

 

Finally, I scale my investments accordingly with risk in mind.  The relative size of FFH being 10 x the best buy investment, and SSW more than double bby.  I see bby leaps as a high return, medium risk

investment. 

[Junto]

To me, the question of whether or not retailers will be under threat by the internet is something that should be testable if the investor is willing to gather the requisite empirical data necessary. Basically, you would want to see the number of consumer electronics sold in a market and the break down of the retailers that are selling the goods. Then you could take a look and see how market share is shifting and if it is indeed shifting in favor of internet retailers.

 

Now, what I know is that in 2008 Amazon sold $4,430 in "Electronics and other general merchandise". In 2010 that figure jumped to $10,998, almost a 150% increase in just two years.

 

You could try to argue that the pie (electronics sold) expanded dramatically over those last two years and maybe that's possible. But I would bet that a good deal of it has also come from simply taking share from brick and mortar retailers like Best Buy -- which is why they're having negative SSSs and why their executives are shifting gears away from profit margins to market share.

 

This kind of analysis needs to be done, because if not, you will simply be looking at financial metrics which could be unreliable if going forward the operations of the business erode.

 

Tariq did you go read this post: http://seekingalpha.com/article/287267-the-case-for-best-buy-part-iii-the-amazon-threat ? I would insert the graph here  but it was a table in the original post.

 

The writer further goes on to build the following:

http://static.seekingalpha.com/uploads/2011/8/11/564077-131310257108601-Eric-Hagemann_origin.jpg

 

It addresses this almost directly as it discusses Amazon's Growth and its market share.

 

I am with Uccmal on this deal. "I see with Best Buy is a Company trading at 8x pe, 4x cash flow, slightly above book, that is rapidly reducing share count, with good management.  Their online presence is growing rapidly 20-30% y over y."

 

My investments are also almost entirely transparent as they are tracked at Covestor: http://bit.ly/fUJy7A I have nothing to hide and wear my winners and losers on my sleaves.

[Uccmal]

Free cash flow analysis for Fiscal 2011.  Fiscal 2012 looking to be about 2 billion.  I did this as a general exercise earlier in the year.  The spreadsheet template is not mine:  Credit to Wiley and Sons.

 

Best_buy.xlsx

[Guest misterstockwell]

Al, one thing to be watchful for is your own personal biases when evaluating companies. I think sometimes investors will look at how they see the world/how they act and believe that all customers will act similarly and often that's just not the case.

 

I remember there were some folks on this board who were bulled up on RIMM because they knew people within their family that refused to part with BBM or they knew that their workplace's IT department refused to look at anything non-RIMM. It didn't work out too well for those investors to take such a close-minded view of the world.

 

To me, the question of whether or not retailers will be under threat by the internet is something that should be testable if the investor is willing to gather the requisite empirical data necessary. Basically, you would want to see the number of consumer electronics sold in a market and the break down of the retailers that are selling the goods. Then you could take a look and see how market share is shifting and if it is indeed shifting in favor of internet retailers.

 

Now, what I know is that in 2008 Amazon sold $4,430 in "Electronics and other general merchandise". In 2010 that figure jumped to $10,998, almost a 150% increase in just two years.

 

You could try to argue that the pie (electronics sold) expanded dramatically over those last two years and maybe that's possible. But I would bet that a good deal of it has also come from simply taking share from brick and mortar retailers like Best Buy -- which is why they're having negative SSSs and why their executives are shifting gears away from profit margins to market share.

 

This kind of analysis needs to be done, because if not, you will simply be looking at financial metrics which could be unreliable if going forward the operations of the business erode.

 

Newegg is also a huge presence in this space, and growing. They had an S-1 out with their now-cancelled IPO plans, and, if I remember correctly, they were doing over $2 billion in sales, 100% electronics related. They should be watched closely if you own BBY. They are a direct competitor with fantastic pricing, great customer service, and an excellent website for shopping.

[S2S]

Newegg is also a huge presence in this space, and growing. They had an S-1 out with their now-cancelled IPO plans, and, if I remember correctly, they were doing over $2 billion in sales, 100% electronics related. They should be watched closely if you own BBY. They are a direct competitor with fantastic pricing, great customer service, and an excellent website for shopping.

 

The same goes for Apple Store, which has consistently comped in double digits (vs. BBY's negative mid single digits) and now has a revenue base approximately 1/4 of BBY's domestic sales. Or mass discounters WMT and TGT, both of which have made big pushes into BBY's home turf in the last 2 years.

[stahleyp]

I don't have a stake, but I thought others might find this of interest.

 

http://www.forbes.com/sites/larrydownes/2012/01/02/why-best-buy-is-going-out-of-business-gradually/

[rkbabang]

I don't have a stake, but I thought others might find this of interest.

http://www.forbes.com/sites/larrydownes/2012/01/02/why-best-buy-is-going-out-of-business-gradually/

 

I don't own BBY and I won't shop there. Many of the things mentioned in this article is why.  I had a problem returning something about 3 years ago and I haven't been in a Best Buy since.  I was a few days past their "return window", so even though I had the receipt and never even opened the box "we're sorry there is nothing we can do for you".  Well there is nothing I will ever do for them.  There is simply no reason to ever do business with a company that treats its customers so poorly when you have so many other options.  BBY will not be around 10 years from now and the sales tax issue has nothing to do with it.  I live in NH, so sales taxes have nothing to do with why I use Amazon.com, tigerdirect.com, newegg.com, mwave.com, overstock.com, or even Radioshack, Target, or Wal-Mart, but never ... ever, under any circumstances, Best Buy.  Their prices are not the best, their employees are not knowledgeable, and their customer service has to be among the worst in all of retail.  How can such a business stay as a going concern long term?  I just don't see it.  Not without a good house cleaning of current management and a complete 180 degree turn-around in how they do business.

 

--Eric

 

[StubbleJumper]

I don't have a stake, but I thought others might find this of interest.

http://www.forbes.com/sites/larrydownes/2012/01/02/why-best-buy-is-going-out-of-business-gradually/

 

I don't own BBY and I won't shop there. Many of the things mentioned in this article is why.  I had a problem returning something about 3 years ago and I haven't been in a Best Buy since.  I was a few days past their "return window", so even though I had the receipt and never even opened the box "we're sorry there is nothing we can do for you".  Well there is nothing I will ever do for them.  There is simply no reason to ever do business with a company that treats its customers so poorly when you have so many other options.  BBY will not be around 10 years from now and the sales tax issue has nothing to do with it.  I live in NH, so sales taxes have nothing to do with why I use Amazon.com, tigerdirect.com, newegg.com, mwave.com, overstock.com, or even Radioshack, Target, or Wal-Mart, but never ... ever, under any circumstances, Best Buy.  Their prices are not the best, their employees are not knowledgeable, and their customer service has to be among the worst in all of retail.  How can such a business stay as a going concern long term?  I just don't see it.  Not without a good house cleaning of current management and a complete 180 degree turn-around in how they do business.

 

--Eric

 

 

So, let me get this straight.  When you want to buy a TV or sound system, you don't go to BestBuy where they have 97 TVs all lined up so that you can easily compare the picture quality?  Instead you go to RadioShack Walmart where they have like 12 TVs lined up on the wall?  I completely understand the idea of buying electronics online, but there's no way in hell that I'll buy a TV without actually seeing the picture in person, or a sound system without actually hearing it first.  Perhaps I might go to BestBuy to do my comparisons, and then go home and buy it online....but chances are I'll just make a purchase at a big box electronics retailer (like BestBuy) while I'm still at the store.

 

Once in a while, I build up a real hate against a retailer, but...

[S2S]

So, let me get this straight.  When you want to buy a TV or sound system, you don't go to BestBuy where they have 97 TVs all lined up so that you can easily compare the picture quality?  Instead you go to RadioShack Walmart where they have like 12 TVs lined up on the wall?  I completely understand the idea of buying electronics online, but there's no way in hell that I'll buy a TV without actually seeing the picture in person, or a sound system without actually hearing it first.  Perhaps I might go to BestBuy to do my comparisons, and then go home and buy it online....but chances are I'll just make a purchase at a big box electronics retailer (like BestBuy) while I'm still at the store.

 

Once in a while, I build up a real hate against a retailer, but...

 

I'm not Eric, but here's my $.02: yes, I bought both LCD TVs I have had sight unseen on Amazon. On both occasions, I researched various models, and educated myself to a reasonable degree using sources such as the online magazines and avsforum. The latter community, for what it's worth, insists on re-calibrating display settings to achieve better quality - hence what you see in-store might not reflect the final set up.

 

In any case, more and more people are using smartphone apps like RedLaser (edit: which also allows online Amazon purchases via phone while on BBY premise) while making big ticket purchases, where price difference between Best Buy and Amazon isn't insignificant. How is being a capital-intensive showroom for online competitors a sustainable business model?

[txlaw]

So, let me get this straight.  When you want to buy a TV or sound system, you don't go to BestBuy where they have 97 TVs all lined up so that you can easily compare the picture quality?  Instead you go to RadioShack Walmart where they have like 12 TVs lined up on the wall?  I completely understand the idea of buying electronics online, but there's no way in hell that I'll buy a TV without actually seeing the picture in person, or a sound system without actually hearing it first.  Perhaps I might go to BestBuy to do my comparisons, and then go home and buy it online....but chances are I'll just make a purchase at a big box electronics retailer (like BestBuy) while I'm still at the store.

 

Once in a while, I build up a real hate against a retailer, but...

 

I'm not Eric, but here's my $.02: yes, I bought both LCD TVs I have had sight unseen on Amazon. On both occasions, I researched various models, and educated myself to a reasonable degree using sources such as the online magazines and avsforum. The latter community, for what it's worth, insists on re-calibrating display settings to achieve better quality - hence what you see in-store might not reflect the final set up.

 

In any case, more and more people are using smartphone apps like RedLaser (edit: which also allows online Amazon purchases via phone while on BBY premise) while making big ticket purchases, where price difference between Best Buy and Amazon isn't insignificant. How is being a capital-intensive showroom for online competitors a sustainable business model?

 

My understanding is that BBY and other big box retailers basically boost brightness to full blast and mess with the TV settings so that the TV looks attractive to the eye in store.  In reality, you ought to calibrate a TV to optimize the picture, and it's best to go to the Internet to research whether the TV has good black levels, haloing problems, etc.  And ,apparently, even within the same model family, there can be variation in the hardware as well, so your eye needs to be trained to adjust settings based on what you see in front of you and the room setting.

 

S2S is right on avsforum.  It's a pretty good resource for figuring out what TVs are good.  I bought a Samsung LCD TV from Amazon almost four years ago and calibrated it using avsforum settings.  That TV has a much better picture than even some of the newer TVs I have seen in people's houses.

 

The thing with BBY is that you had better build in a substantial decrease in gross margins in your model because I don't see how they are sustainable, at least with respect to products (as opposed to services).  During the holidays, I needed to buy an HDMI cable ASAP.  We went to BBY, and the price was outrageous.  So we went to Walmart instead and got it for a much better price.  I would have bought the cable on Amazon had I not needed the cable right away.  I also agree with the general impression among people that BBY staff are not knowledgeable. 

[stahleyp]

Speaking of customer service, anyone remember this?

 

http://arstechnica.com/old/content/2004/11/4382.ars

[rkbabang]

I don't have a stake, but I thought others might find this of interest.

http://www.forbes.com/sites/larrydownes/2012/01/02/why-best-buy-is-going-out-of-business-gradually/

 

I don't own BBY and I won't shop there. Many of the things mentioned in this article is why.  I had a problem returning something about 3 years ago and I haven't been in a Best Buy since.  I was a few days past their "return window", so even though I had the receipt and never even opened the box "we're sorry there is nothing we can do for you".  Well there is nothing I will ever do for them.  There is simply no reason to ever do business with a company that treats its customers so poorly when you have so many other options.  BBY will not be around 10 years from now and the sales tax issue has nothing to do with it.  I live in NH, so sales taxes have nothing to do with why I use Amazon.com, tigerdirect.com, newegg.com, mwave.com, overstock.com, or even Radioshack, Target, or Wal-Mart, but never ... ever, under any circumstances, Best Buy.  Their prices are not the best, their employees are not knowledgeable, and their customer service has to be among the worst in all of retail.  How can such a business stay as a going concern long term?  I just don't see it.  Not without a good house cleaning of current management and a complete 180 degree turn-around in how they do business.

 

--Eric

 

 

So, let me get this straight.  When you want to buy a TV or sound system, you don't go to BestBuy where they have 97 TVs all lined up so that you can easily compare the picture quality?  Instead you go to RadioShack Walmart where they have like 12 TVs lined up on the wall?  I completely understand the idea of buying electronics online, but there's no way in hell that I'll buy a TV without actually seeing the picture in person, or a sound system without actually hearing it first.  Perhaps I might go to BestBuy to do my comparisons, and then go home and buy it online....but chances are I'll just make a purchase at a big box electronics retailer (like BestBuy) while I'm still at the store.

 

Once in a while, I build up a real hate against a retailer, but...

 

Every TV in my house (5 of them), both large and small, was purchased online.  All of my Denon A/V equipment was purchased online.  All of my computer/networking equipment was purchased online.  All of my video game systems/mp3 players/Roku boxes/Nook e-reader/cell phones/GPS system and other various electronic things I own were all purchased online.  I am very happy with all of it in both price and quality.  I do tons of research before buying anything and I buy only from places where I can easily return it in the rare event that I made a poor decision or the item isn't what I expected.

 

--Eric