Best Buy's Cheaper Price Strategy Fizzles for Christmas

Santa Claus delivered Best Buy a lump of coal for Christmas as the chain’s efforts to compete on price failed to impress holiday shoppers, with sales falling during a crucial retail period.

The company said sales at stores open for at least 14 months fell 0.9 percent during the nine weeks ended Jan. 4, compared with flat sales a year earlier. Domestic revenue for the period was off 1.5 percent. Best Buy executives blamed the decline on “aggressive promotional activity” that persisted the entire holiday shopping season, limited supplies of several products, including new gaming consoles, and “disappointing” sales for mobile phones. Despite all the discounting, Americans responded with a collective shrug.

Best Buy is the latest retailer to confirm that the Christmas shopping season was a promotional mess. On Tuesday, GameStop cut its income forecast due to lackluster sales and thinner margins, and shares dropped 20 percent—the most in 11 years.

On Jan. 6, HHGregg, an electronics retailer with stores in 20 states, cut its income outlook for the holiday quarter, citing heavy discounting of televisions and tablets by online retailers. HHGregg did not match most rivals’ pricing, which hurt sales—off 20 percent in electronics. Shares of the Indianapolis-based retailer have fallen 22 percent this year.

Hanging over Best Buy’s moribund results is the decision under Chief Executive Hubert Joly to match rivals’ prices and “take price off the table” for consumers. In a hastily arranged conference call today, Joly and other executives acknowledged the “speed bump” posed by the holidays but said the pricing strategy is paying off with market-share gains. “Once price competitiveness is there, you eliminate price from consideration for the customers,” Joly said, noting that “some good momentum is going to be completely overshadowed by the [pricing] investment we made.”

Joly hopes that once shoppers realize they’ll get the same price at Best Buy, the chain can use its showrooms, Geek Squad services unit, and vendor relationships to build loyal, long-term customers. “The set of cards we have is significant,” he said. Best Buy will continue to be aggressive in its restructuring program, which aims to cut nearly $800 million in structural costs from the business. “One of my middle names is frugality,” Joly told analysts.

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