More black days are ahead for the blue shirts of Best Buy (BBY).
Shares of the consumer electronics giant were crushed on Tuesday after another disappointing quarter. The stock sunk to levels that Best Buy investors hadn't seen since the 1990s. Then again, it's a safe bet that many of those shareholders wish that they could go back in time to relive the chain's glory years.
Unfortunately, the future doesn't look very encouraging.
Let's go over some of the reasons why Best Buy has fallen to a millennium low -- and why things may get worse.
1. Positive comps and margins are inversely related
CEO Hubert Joly has highlighted two problems that need mending at Best Buy. The chain needs to turn its negative same-store sales into gains. It also has to reverse the problematic trend of declining margins.
The problem here is that it's hard to fix one without making the other worse.
Lowering prices to make the chain competitive with Amazon.com (AMZN) and other cheaper retailers may help drum up sales. The company can overcome the negative comps in volume if electronics shoppers once again see Best Buy as a price leader. The problem with that is that is that gross margins will get clobbered.
The company's brazen decision to allow price matching in some product categories this season may help it boost sales by keeping tire kickers from leaving the store without buying what they want. But it's going to be at the expense of mauling its margins.
It's not Joly's fault. He's only been there for 11 weeks. It's not Best Buy's fault. Online retailers have meager overhead costs, and can pass on those savings to deal-seeking shoppers.
The equation cuts the other way, too. If the plan to boost margins involves trying to get customers to buy more of their insurance plans and services, those same gouged shoppers will want to buy online so they don't get had in person again.
2. Exclusivity won't save the day
A popular way for brick-and-mortar chains to beat online retailers is to offer exclusive merchandise. You won't find IKEA furniture other than through IKEA. Target (TGT) is a great mainstream example. The "cheap chic" department store chain teams up with home and apparel designers for product lines that can only be bought at Tar-jay.
Best Buy wants to play in that sandbox.
During Tuesday's conference call, Best Buy discussed its plan to cash in on Microsoft's (MSFT) Windows 8. Best Buy is stocking 45 PC models that can only be purchased at Best Buy. It may sound like a good plan. The showrooming impact is tripped up because that model can't be priced against the same PC at other retailers. However, these PCs are merely spec sheets. If a computer with similar specs can be had for less elsewhere -- and it probably can be -- Best Buy won't get the sale.
As Best Buy continues to shrink in relevance, manufacturers will have less reason to give a hot product only to Best Buy. The chain will get the leftovers in niches that are commodities anyway.
If Best Buy could have set itself apart with proprietary consumer electronics don't you think that it would have done so with its own Insignia lines?
3. Best Buy is practically groveling
"Encourage everybody to shop at Best Buy between now and Christmas," were Joly's final remarks to analysts during Tuesday's earnings call. "And as you shop there, please give us feedback on your experience, both the good and the bad as we're focused on driving the customer experience now."
"I look forward to your purchases and your feedback."
In that order?
Coming from any other company this would come off as an endearing sendoff heading into the telltale holiday shopping season. But given Best Buy's horrendous fundamentals these days it's hard to tell. If "getting analysts and their families to spend more money at Best Buy" is part of the plan to turn comps positive, don't be surprised if the feedback proves to be as negative as the store-level sales growth will be.
Motley Fool contributor Rick Munarriz does not own shares in any of the stocks in this article. The Motley Fool owns shares of Amazon.com, Best Buy, and Microsoft. Motley Fool newsletter services have recommended buying shares of Amazon.com and creating a synthetic covered call position in Microsoft.
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