Best Buy: To Boldly Go Where Circuit City Went Before

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Best Buy (NYS: BBY) has a history of muscling out rivals from the electronics superstore market. But did the company learn anything from the death throes of its unfortunate victims?

Judging by comments made by a Best Buy representative to Dow Jones Newswires, I'm not so sure. You see, the company is letting more heads roll on top of the 50 store closings it announced earlier this year -- and these layoffs seem like a play ripped straight out of the Circuit City playbook. We all know how that story played out in the end, and it wasn't pretty.

In an effort to slash operating costs, Best Buy is reducing its workforce by another 2,400 positions. Six hundred of these come from the Geek Squad installation and repair service. It's unclear exactly where the rest of the scythe blows will fall, but if the company really is treading down Circuit City's path, I'd expect those cuts to land among experienced store employees who know what they're doing, but also command a larger paycheck.


That's exactly what Circuit City did in a last-ditch effort to save its own skin. Cut the expensive but experienced people, replace them with fresh hires at minimum wage, and reap the cost-saving rewards. Except customers caught on to the obviously impaired store service and got their electronics from Best Buy instead.

Wedbush Morgan analyst Michael Pachter sums the new layoffs up very nicely: "The only real differentiator is that they have service, that service is installation and advice, and that's what Geek Squad does."

Unlike Circuit City, Best Buy doesn't have an easily identifiable nemesis, ready to absorb fleeing customers. This time, the killers are legion. It starts with all-round big-box giants such as Target (NYS: TGT) and Costco (NAS: COST) , both of which sell huge volumes of everyday goods and can afford to take somewhat lower profit margins on big-ticket electronics. And the lethal blow comes from Amazon.com (NAS: AMZN) and other ultra-affordable online shops. We've created a free report on how e-tailers are destroying traditional store chains. Read it and weep gently for Best Buy.

At the time this article was published Fool contributor Anders Bylund holds no position in any of the companies mentioned. Check out Anders' holdings and bio, or follow him on Twitter and Google+. The Motley Fool owns shares of Best Buy, Amazon.com, and Costco Wholesale. Motley Fool newsletter services have recommended buying shares of Costco Wholesale and Amazon.com. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinion, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

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