Best Buy's Amazonian Nightmare

As shoppers look elsewhere, the electronics retailer cuts back
Data: Compiled by Bloomberg

Where did you buy that snazzy Zenith 19″ or VCR however many years ago? Circuit City? Crazy Eddie? Nobody Beats the Wiz? Service Merchandise? Incredible Universe? The list of departed—dearly or otherwise—big boxes that once dominated the consumer electronics landscape is endless. (Not to mention the mass extinction of regional players such as Lechmere, Tweeter, Sound Advice, and Kaufman & Roberts.) So you’d think the last man standing in the field, Best Buy, the world’s top electronics retailer, would be living large right about now. Instead, with its stock at a multiyear low, the Richfield (Minn.) retailer today announced it will be shutting 50 of its 1,100 stores amid a revenue shortfall. Management promised to scale back on discounts, effectively ceding low-margin sales to rivals. Best Buy also says it plans to slash $800 million in costs over the next three years.

Best Buy’s moves show how even those traditional merchants that have managed to trump their brick-and-mortar rivals can’t automatically count on picking up their former customers. Channeling Johnny Cochran, Gimme Credit analyst Carol Levenson explains: “If you don’t perform, you must transform. … No amount of adjustments or restatements can obscure the fact that the company returned to negative comparable-store sales in the fourth quarter … and posted a second straight year of comparable-store sales declines.” All this, she says, despite the fact that ”Best Buy was handed a gift when Circuit City left the building.”

One retailing shift that’s likely at work here is a phenomenon known as “showrooming,” in which window shoppers go to one of Best Buy’s well-appointed stores to avail themselves of quality face time with gadgets and salespeople (think inventory and salary costs) before consummating the transaction elsewhere—online. Most often, they do that through, where shipping is frequently free and, depending on your state, sales tax does not apply. Fueling that growing practice are price-comparison apps such as Amazon’s Price Check, which lets those obnoxiously savvy smartphone users scan a particular item’s barcode at a store and immediately know who has the best deal on the Web. Consumers can then just buy it right on their phone. It’s like a scene from the vintage cartoon comedy The Jetsons, but traditional retailers with hundreds of costly stores, such as Best Buy, Sears Holdings, and even Wal-Mart, aren’t laughing.