Consumer electronics behemoth Best Buy is on the ropes. Yesterday, the company reported a staggering 90 percent drop in profits for the second quarter of 2012. According to experts, it may only be a matter of time before Best Buy has gone down for the count.
The news should come as no surprise to anyone who’s been following the struggles of the beleaguered electronics retailer, whose financial report showed only $33 million in profits – paltry in comparison with the space Best Buy occupied just a year ago, when those numbers were at a far more respectable $260 million.
What gives? The surprising downward spiral seems to make little sense, especially at a time when consumer electronics are flying off shelves into the eagerly waiting arms of those in search of the latest, greatest tablet, smartphone, and HDTV technologies. But the answer to that enormous question mark can be found in a single word – Amazon – and in the understanding that bad economic times don’t necessarily cause people to stop buying. They just cause them to seek better deals wherever they can get them.
Test Drive at Best Buy
Looking at Best Buy’s depressing second quarter showing is all the evidence anyone needs to see that those deals are being found elsewhere, mainly through online retailers like Amazon, eBay, etc. But that’s not the only factor at play here. According to Best Buy, the losses can also be attributed to a weakness in the gaming segment. Still others cite the 55 percent drop in profits as evidence that fewer people are buying high ticket big screen TVs and opting for slightly smaller, more affordable dimensions. But it could very well be Best Buy’s greatest appeal that could be its undoing, offering consumers the opportunity to “test drive” electronics on the floor before making their actual purchases elsewhere online.
Meanwhile, shakeups in Best Buy’s rank and file are only serving to add to the uncertainty of the company’s future. Founder and primary shareholder Richard Schulze, who resigned in June amid a scandal involving ousted CEO Brian Dunn’s relationship with a former female employee, has been busy organizing a bid to regain full control of the company and take it private. In clear rebuke of his overtures – which would run Schulze a rough $8 billion – Best Buy has named Hubert Joly its new CEO. Joly recently resigned his post as CEO of Carlson, a restaurant and hotel company that owns TGI Friday’s and Radisson Hotel chains, in order to take the job.
Whether or not Joly will have enough time to turn a dire situation into a profitable one remains to be seen. Already, investors are taking the developments as a clear sign it may be time to cash in and run. As a result, Tuesday saw Best Buy’s shares reach a nine-year low before rebounding slightly to finish at $17.91.
Win 8 to the Rescue?
Interestingly enough, it may be Microsoft that could come to the rescue by saving Best Buy’s hide – not by way of takeover, but by way of good old fashioned capitalism. Standing in the shadows, waiting to make its grand appearance just in time for the Holiday shopping season, is Windows 8. According to Best Buy, the release of Windows 8 (and the buzz factor accompanying the impending market arrival of the Windows Surface tablet) could drive revenues high enough to keep the flagging electronics giant alive for one more crucial round.