Best Buy Has a Credibility Problem

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What do Greenlight Capital's David Einhorn and a Best Buy (NYS: BBY) compensation consultant have in common?

They both decided to wave bye-bye to Best Buy.

In Einhorn's case, it's simply an investing decision. The rock star hedge fund manager unloaded his stake in Best Buy during the second quarter, according to an investor note obtained by Reuters. Einhorn's fund posted a loss of 3.2% during the quarter as lucrative shorts -- including a smart call betting against Green Mountain Coffee Roasters (NAS: GMCR) , which shed more than half of its value during the period -- weren't enough to offset the price declines on his long positions.


Einhorn admits to selling the consumer electronics retailer at a loss, but he should probably consider himself lucky.

An iconic hedge fund manager calling it quits on Best Buy is bad enough, but a consultant bolting is even worse.

Don Delves isn't a household name like Einhorn, but he was an independent consultant for the retailer's compensation committee for seven years before resigning last month.

Delves didn't comment publicly on his departure, but sources tell Bloomberg that he quit after Best Buy decided to give more than 100 managers retention bonuses that aren't tethered to performance targets. In other words, they are receiving bonuses just to stick around.

Think about that for a bit.

This is a company that has announced store closures and layoffs. Comps and profitability have been sluggish for two years. How is morale going to be when employees realize dozens of managers who watched this all happen are being paid more money without a tangible incentive to get it right?

For years, most observers have argued that Best Buy's biggest problem is Amazon.com (NAS: AMZN) . The online retail leader offers lower prices than Best Buy in nearly every category -- without the pushy sales staff trying to tack on overpriced services and extended warranties.

However, it's starting to become clear that the real enemy here is Best Buy itself.

"Best Buy" is anything but
I entered a bearish CAPScall on Best Buy in Motley Fool CAPS last year. The call is beating the market so far -- because Best Buy is not. If you want to play nice with the trends that will pay off in the future, forget Best Buy and begin reading up on the stocks that smart investors are buying. It's a free report, but it will only be available for a limited time, so check it out now.

The article Best Buy Has a Credibility Problem originally appeared on Fool.com.

The Motley Fool owns shares of Green Mountain Coffee Roasters, Best Buy, and Amazon.com.Motley Fool newsletter serviceshave recommended buying shares of Amazon.com and Green Mountain Coffee Roasters.Motley Fool newsletter serviceshave recommended creating a lurking gator position in Green Mountain Coffee Roasters. The Motley Fool has adisclosure policy. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. Try any of our Foolish newsletter servicesfree for 30 days.Longtime Fool contributor Rick Munarriz calls them as he sees them. He does not own shares in any of the stocks in this story, except for Green Mountain. Rick is also part of theRule Breakersnewsletter research team, seeking out tomorrow's ultimate growth stocks a day early.

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