January 17, 2014

A BAD CHRISTMAS FOR BEST BUY:

Best Buy’s shares plunged this morning on news of its brutal holiday season. Yet Chief Executive Officer Hubert Joly says he’s going to continue the cost-cutting strategies that helped margins last year.

As I say, this is understandable, but ultimately, it’s hard to see how endless cost-cutting is going to keep Best Buy in business. It’s never going to get down to Amazon’s cost structure — especially because Amazon has other businesses, such as the third-party marketplace and its cloud computing services, that could be tapped for revenue to see the consumer electronics side through a price war. As I argued in a 2012 Newsweek feature, Best Buy is more likely to succeed by focusing on the areas that Amazon can’t match, such as top-notch service and carefully curated stock.

To be fair, that’s not an easy strategy to carry off. Getting the internal support to try would be hellishly difficult; a lot of jobs would be significantly changed, or eliminated, in the switchover. Then there are the stores to think about: A high-service, curated collection probably implies a very different retail format than the “giant box” stores Best Buy currently occupies. Unfortunately, Best Buy still has years to run on a lot of leases for giant boxes.

The last time I went to Best Buy, it was for a cable that I needed right away. They didn’t have it, and referred me to their website.