"Best Buy's efforts to combat showrooming and lure shoppers into stores during the holidays with aggressive promotions appear to have backfired," wrote Mashable's Seth Fiegerman today.
The company announced that sales declined 0.8% year-over-year, for the nine-week period ending Jan. 5. "Investors reacted by sending the stock down sharply. Best Buy was down by more than 30% at one point in pre-market trading Thursday."
Best Buy's stock dropped by 30% Thursday due to reports of weak holiday sales.
What went wrong?
"Best Buy blamed the troubles on a number of factors, including competitors offering discounted pricing throughout the holiday season, supply issues on 'key products,' and perhaps most troubling, 'significant store traffic declines between Power Week and Christmas,'" reported CNET's Don Reisinger. "Best Buy also cited a 'disappointing mobile phone market.'"
On the other hand, online rival Amazon announced a record holiday season last month, Reisinger added.
Amazon's advantage in not having to operate a nationwide chain of stores became evident during Best Buy's recent holiday season*. "Best Buy’s response to the threat of online competitors stealing its customers has been to price just as aggressively in its stores, even though it has a higher cost base due to its physical presence," wrote Quartz's John McDuling. "Basically this strategy is savaging its profit margins."
Best Buy's strategy to compete with e-tailers by discounting aggressively is 'savaging its profit margins.'
Finally, ZDNet's Larry Dignan wrote about Best Buy's efforts on the e-commerce side: "On a conference call with analysts Best Buy CEO Hubert Joly noted that the company had some positives:
- The company's Net Promoter Score improved.
- Online sales were up 23.5 percent.
- Ship from store e-commerce fulfillment worked well in 400 stores and now Best Buy has 1,000 stores shipping.
"Best Buy's challenge now is to cut costs, grow online sales --now 11.5 percent of revenue up from 9 percent a year ago -- and offer better service," Dignan wrote. And as indicated by its plummeting stock price, it needs to boost its profitability in a hurry. Investors are losing patience.
*And Best Buy isn't alone in this. Read the Washington Post's Retail in the age of Amazon: Scenes from an industry running scared (Jan. 15).