Best Buy May Switch to Wal-Mart-Style Everyday Prices
Best Buy Co., the world’s largest consumer electronics retailer, may curtail three decades of tactical discounting and move instead to its own version of the everyday prices pioneered by Wal-Mart Stores Inc.
With Americans increasingly using smartphones to comparison shop, consumers are unwilling to wait for sales if they find better deals elsewhere, said Mike Vitelli, executive vice president and co-head of the North America division.
“We have to move rapidly in recognizing the transparency of pricing,” Vitelli, 55, said in a Feb. 7 interview at Best Buy’s headquarters in Richfield, Minnesota. Internal discussions about making the switch are at an early stage, he said.
In December, Best Buy cut its profit outlook for the year ending this month to between $3.20 and $3.40 a share, down from $3.55 to $3.70, citing falling domestic demand for televisions, notebook computers and gaming software. It lost TV sales after Wal-Mart and Target Corp. discounted prices on their least expensive models on the Black Friday weekend in late November while Best Buy delayed price cuts until December, Vitelli said.
The retailer has tried new tactics to keep customers from defecting to rivals. In December, the company dropped fees it charges to take back merchandise. On Feb. 6, it officially kicked off a product buyback program with a Super Bowl commercial starring Justin Bieber and Ozzy Osbourne.
Typically everyday pricing is a pledge that a retailer will offer the best price it can get from suppliers and still make money on each item. Best Buy may not be able to generate enough consumer interest to make up for lower average selling prices, said Michael Pachter, a Wedbush Securities Inc. analyst in Los Angeles.
“Wal-Mart makes up for everyday low pricing in volume,” said Pachter, who rates Best Buy as “neutral.” “Best Buy doesn’t have the traffic, so it doesn’t make sense for them. They’re losing better-informed customers who are more savvy about alternative places to buy the same product.”
Best Buy fell 50 cents to $33.85 at 4 p.m. in New York Stock Exchange composite trading. The shares have fallen 5.9 percent in the previous 12 months.
Best Buy hasn’t decided how the new pricing model would work, Vitelli said. The company has begun talking with Sony Corp., Samsung Electronics Co. and other manufacturers about offering greater flexibility on pricing their products, he said.
Samsung declined to comment and a Sony spokesman said a retail executive wasn’t immediately available to answer questions.
Best Buy’s sales growth has slowed amid heightened competition from rivals such as Wal-Mart and online retailers like Amazon.com Inc., vying for recession-weary customers with promotions and new items. Best Buy’s revenue may rise 1.2 percent to $50.3 billion this year, the slowest pace in at least a decade, according to data compiled by Bloomberg.
During a Best Buy staff meeting, Vitelli was willing to say out loud: “Why do we carry inventory when we train consumers only to buy it’” on sale, said Rick Rommel, a senior vice president who helps run a unit that tests new concepts.
“If the pricing isn’t everyday, the consumers just wait,” Rommel said in an interview. “Our inventory sits and waits for that next promotional moment.”
Switching to consistent pricing would “be very powerful,” said Barry Judge, Best Buy’s chief marketing officer. “It makes our pricing much more transparent than it is today.”
Best Buy’s weekly newspaper circular would be “a whole lot easier to lay out” with prices easier for consumers to understand, Judge said.
“The prices are the prices,” he said.
The retailer is also reducing the number of items it sells to focus on products that sell well, Vitelli said. By the end of the year the company will carry fewer than 100 TV models in the average store, down from about 140 a year ago. Slower-selling products will continue to be sold online, Vitelli said.