Best Buy Wants to Pull the Bandage Off Quickly
Best Buy (NYS: BBY) wants to shrink quickly.
Even without a permanent CEO, the beleaguered consumer electronics chain publicly identified the 50 stores that it plans to close this year, and all but eight of them should be shuttered within the next four weeks.
Releasing bad news on Saturday -- or after the market close on Friday -- is usually a sneaky tactic to sweep ill tidings under the rug, but this isn't necessarily what Best Buy is doing here. We've known about the 50 closures since late March. If anything, the market would view as positive Best Buy's quick action at a time when its boardroom is scrambling to substantiate allegations of ex-CEO Brian Dunn's misdeeds.
Unfortunately for Best Buy, it doesn't end here.
Best Buy employees from all over were nervously scouring the list to see if they would be out of a job soon. In announcing that most of the stores will close by May 12, the company made it clear that displaced workers would be offered severance packages if they couldn't find new positions at other stores. However, even those fortunate enough to see that their stores survived the cut may not be around for too much longer.
There are no quick fixes to the "showrooming" trend that's dooming the big-box format. Digital delivery is eating into the media that prompted frequent store visits from Best Buy's most loyal shoppers, and lower prices offered through online merchants for other consumer electronics gear are eating at big-ticket purchases.
Best Buy's response has been to open smaller Best Buy Mobile stores, but RadioShack's (NYS: RSH) decimated margins during the holiday quarter hint that this isn't the rosy oasis that Best Buy hopes it will be.
Best Buy has the profitability and generally sturdy balance sheet to assure its near-term survival, but don't be surprised if its rush to close 50 of its big stores is simply paving the way for another wave of closures later this year.
Best Buy is not a good buy
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At the time this article was published The Motley Fool owns shares of Best Buy and RadioShack. 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. Rick is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early.
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