Best Buy Holiday Slump: The End for Big Box Retail?

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Jan. 16 (Bloomberg) -- Michael Pachter, managing director at Wedbush Securities, discusses the future of big box retail stores as Best Buy’s holiday sales fall short of expectations on Bloomberg Television’s “Market Makers.”

Data suggests since august 2012. are the chickens coming home to roost?

I think so.

I think my mistake was not giving the market more credit for rewarding new management.

Newman as you came and right after i downgraded.

They have done as well as anybody could expect, they have control of things they can control, the cost side of the equation.

They cannot stop the onslaught from online competition, they cannot stop price competitiveness, nothing they can do.

Traffic is down at best buy, you saw that with the holiday comp.

Traffic will be down next year because amazon is not going away.

Walmart is not going to concede any market share.

I really think that their business is headed for oblivion.

You are not going to have big-box bucks consumer electronics retailers in five years or 10 years.

All amazon style?

Xlviii -- amazon, there are 1000 internet retailers.

If you go to shopping.com and plug in any product best buy sells, you will find it competitively priced online.

If you look for accessories, iphone cases or battery packs, they are significantly cheaper online.

Yes, best buy will match.

Once you go online, are you really going to print out the ad and asked for a price match?

Or will you hit order and be done.

The degradation is affordable too for traffic on accessories is down.

Why would you buy a print cartridge at best buy?

I buy this.

It is a persuasive thesis.

What people are trying to figure out, if you are right and big electronics stores did not exist five years to 10 years from now and it is "oblivion." what should this company be worth now.

Through the cash flow analysis, explain what -- best buy is trading at $27 a share and is worth $9.6 billion, what should it be worth?

Net income is a fair proxy for pre-cache -- free cash flow, there are a lot of moving parts.

Net income is a good proxy.

They will make about two dollars this year, they have 341 million shares, about $680 million in free cash flow.

Let's just say $500 million.

What multiple are you paying for the cash flow that is declining?

$10 or less?

So, with the $5 billion valuation, mid-teens valuation, i am at $18, i have not revised my model, i think that is reasonable for the foreseeable future.

We have to see if cash flow drops to $200 million the next year or management can stabilize it.

Maybe it only drops by $50 million, i don't know what they are going to do.

Hard to say how many more costs they can cut, we have cut all the fat.

We are trimming fat and may be getting muscle and bone, that will make the customer experience not as good and driving a more rapid migration to the internet.

Who do you want to belong?

-- to be long?

I cover amazon with a neutral.

No chance amazon loses share.

Amazon is going to be the world's largest retailer, period.

Not just the largest online retailer.

They know what they are doing, they're profitable.

Not profitable enough to justify a phone dollar price -- a $400 price.

Someday they will be.

You are such a thoughtful guy.

Michael, sharing with us his

This text has been automatically generated. It may not be 100% accurate.

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