Investors who are shocked today by Best Buy’s miserable performance in the quarter that ended in August should take a fresh look at Bernstein Research analyst Craig Moffett’s important studies of what he refers to as the media industry’s “looming affordability crisis.” A report out today, synthesizing some of his recent research, notes that once the poorest 40% of the population pays for food, shelter, transportation, and health care “there is nothing left for clothing…for debt service…for cable…or for phone.” If the government cuts entitlement programs then it would “have a profound impact on spending patterns,” Moffett says, that would lead the media industry into “uncharted waters.”
Best Buy’s new quarterly report suggests that Moffett could have made the same affordability argument about media-related gadgets. The stock is down 7.6% in mid-day trading after the No. 1 consumer electronics retailer reported net earnings of $177M, down 30% vs the same period last year, on flat revenues of $11.3B. Earnings at 47 cents a share fell short of the 53 cents that analysts expected. Best Buy says that it’s selling lots of tablet computers and e-readers — which largely appeal to well-off early adopters. But it’s struggling to sell mass audience products including TV sets, digital cameras, gaming systems, and physical media such as DVDs. That’s why the chain forecasts that sales at stores open a year or more could decline as much as 3% for the fiscal year that ends in February. And the retailer will only be able to reach its earnings target of as much as $3.65 a share by spending $1.5B to repurchase its stock — effectively adding about 25 cents to the total.


The country is clearly headed into a serious depression.
The sooner people snap out of their denial and face the truth, the sooner they can start making plans for the eventuality.
Oh, and I’m sure that Best Buy will counter by laying workers off and thereby taking more cash out of the consumer spending pool.
It’s nothing but a downward spiral to the bottom now. That’s what happens when greed becomes a country’s mantra.
You’re right, Troublemaker. Best Buy should hire even more workers they can’t afford to pay. That would turn things around!
Bust Buy’s cash reserves are double what they were two years ago – they can afford to keep their employees – the problem is that very very few American’s have disposable income to spend on DVD’s, CD, and gadgets. We can make more billionaires by cutting more taxes, but they won’t buy any more DVD’s and TV’s with that extra $100M in their bank account. That is why the article was talking about the 40% of Americans who can’t afford clothing (read the article). If they can’t buy a shirt, they aren’t going to by last season’s episodes of Breaking Bad in a box set at Best Buy. When we solve the problem of no jobs, we will solve the problem of low spending on consumer electronics and entertainment.
As in all business, they will cut labor. The only thing that will make a business hire IS SALES! Not tax cuts, not having extra cash on the sidelines, not cutting CEO pay…SALES SALES SALES…and that boost is not in the near future!
It’s a myth that businesses have to cut workers when their sales are down. Businesses always employ workers that they NEED, not based on what their sales are. If Best Buy cuts workers and no one is around to help a customer that wants to buy a laptop or TV, they are losing sales. That person would be employed, regardless. Why would Best Buy keep the person around if they weren’t necessary? There are very few businesses that like employing people that they don’t need. Apple is one of them for sure.
Exactly, it’ll be the start of a vicious cycle. Just like Borders Books. They’ll start firing employees due to low sales, customers will go in and find poorly organized stock and nobody to help them buy something, so they’ll leave without making a purchase, causing more employees to be fired, causing the stores to become ever more disorganized and difficult to use. Sigh.
I never loved Best Buy, but I’ll miss it as one of the last remaining stores carrying any form of physical media. Only WalMart and Target will remain, with their pitiful DVD/CD sections. And Barnes & noble, with their laughable full retail price stickers.
Roger, you could not be more wrong. Labor has to be managed as a percent of sales…..no sales equals no labor. I don’t know where you are getting your info from but it is wrong.
It has nothing to do with the depression…simple – Best Buy simply sucks! Go to Apple.
Actually, no. You know why? Two words: reward zone. I can buy the exact same product at Best Buy, for the same price and same warranty, but unlike Apple, BB rewards me 30 days later with points I can cash in for certificates. It’s not a boatload, but it’s more than Apple offers, which is why I’ll continue to purchase products there even though my city finally got it’s first Apple store a month ago.
“If the government cuts entitlement programs then it would ‘have a profound impact on spending patterns’”
In other words, if taxpayers don’t give them the money to buy ipods and flat screens, they can’t buy them.
No shit.
This would still happen even if the economy were not a factor.
People already have enough flat screen TVs (How many does one need? 3D isn’t a reason to upgrade my flat screen from 5 years ago).
You already have a gaming system if you ever wanted one (5 years since they came out).
There is no more room to hold any more DVD collections (hence streaming from Netflix).
Exactly. Nothing came out during the last few cycles to warrant new purchases of high end products, and the death of physical media has been a long time coming. It just chose a bad time economically speaking to happen. BBY saw the writing on the wall months ago, which is why DVD’s and CD’s were moved from the front middle of the store off to the bad side in the last major brand remodel. What’s the first thing you see when you walk in now? Cell phones, tablets, and eReaders, which are their profit leaders, as the report indicated.
Actually, not really.
Given the number of young adults coming into what should be the workforce, and given the historic desire of people to upgrade (a 60-inch TV does look pretty damn cool compared to a 37-inch model), if the economy were better and the real unemployment rate wasn’t stuck at just over 16%, Best Buy wouldn’t be hurting so much.
Your 100% correct and this is one factor no one in this country see’s but, nice JOB!!
Remember, Best Buys is a retailer, and so far as I know, largely a bricks & mortar storefront one at that. So how much is being sold through other outlets, especially online?
Before concluding how this affects media, the real measure is how much the electronics MANUFACTURERS are selling through all sources in this weak economy. Any numbers available?
A lot of people are still pretty reticent about buying a big-screen TV online.
It’s also true that Best Buy doesn’t exist in a vacuum. Costco may be giving ‘em a run for their money. They move a lot of DVDs, and they undercut Best Buy’s prices on big-screen TVs and sometimes even on gaming consoles.
The report is misleading as is Moffett’s analysis. Best Buy, and companies with similar business model’s to Best Buy, are losing ground to online retailers such as Amazon. Virtually anything you can buy at Best Buy can be purchased at Amazon, or the like, for 30-50% less (as they don’t have to factor in the myriad of overhead cost eg. real estate, infrastructure, etc. As the generations who are not used to, or are uncomfortable with, online shopping age, companies like Best Buy will continue to suffer.
Check this quote out: If the government cuts entitlement programs then it would “have a profound impact on spending patterns,” Moffett says, that would lead the media industry into “uncharted waters.”
Listen U rich 1% and next-tier millionaires. Listen U Teabaggers! Those programs actually allow people to buy your products! To buy the products of the companies U invest in and own! DUH!
Or we could just not give welfare recipients any more flat screens or ipods and save the taxpayers some money.
Why would I buy a Blu ray at Beat Buy when i can go on amazon and get it for half the price? Best But needs to take a closer look at how much they are charging for their products and their competition,
You know what the employee discount is on DVD’s and Blurays? Next to nothing. Know why? Because that’s what BBY brick and mortar’s profit margin is on physical media. The only way they could lower their prices to those offered by Amazon and other online retailers is to cut most of their staff, and resort to glorified redbox-style vending machines, like the type you see in the airports. Basically, they’d have to stop being a brick and mortar and go completely online. Great for you, not so great for the thousands of BBY employees who rely on their paychecks.
I can’t believe that a lot of corporate higher-ups have college degrees and MBA’s. Gee whiz, no kidding, you didn’t think that your ridiculous slashing and outsourcing of jobs, wages and Republican policies wouldn’t lead to this? Without the middle class, you have NO SALES. You and your buddies can’t just hog all the money like you are scoring points in an arcade game. You need workers to produce and consume things. Without them, your little fantasy world collapses.
Why do people continue to waste money going to university? It doesn’t seem like the professors there actually teach properly anymore.
University, hmmm? Why do people from foreign countries feel the need to comment on the US as if they know anything about it, especially when their own is most likely in worse shape itself?
Pop Quiz Rog: Which US state is losing businesses faster than any other in the nation? Answer: California. Reason most given: companies can no longer afford the high tax burden imposed by that state. Surprise Surprise, punishing businesses for doing business in your state/country = Bad Idea!
Oh btw, you ignorantly assume that every other foreign country besides America is in worse shape than you? WOW. You must not fly international much! You should try going to Canada sometime. It makes the US look like a third world country. Oh yeah, people don’t live in igloos, I know that’s your next comment. I’ve actually heard that a lot from Americans. SAD.
Only in the good ole US of A would someone pick on someone else for calling a university a university instead of “college”.
Why should anyone be surprised? What did you think would happen after three decades of purposely hollowing out…degrading…strangling America’s Middle Class? This has been a long-term project of the GOP, corporate America, Wall St., and too many “Democrats” who happen to be very nearly as corrupt. The irony, of course, is that many of those on the top busily chipping away at the Middle Class are also degrading their own markets. They can try to go elsewhere to sell their stuff, but they’ll never find a consumer as robust as Americans used to be. They’ll wake up to the fact, some day, that they have committed economic suicide.
Where is the “Hope and Change”? I’ll bet 99% of the readers on this blog are Obama voters who are on NPR.com when they are not on this site. We have a government full of people who grew up in the public sector and know nothing about building the economy through a strong private sector economic plan. Just hand out money through a stimulus and hope people will buy new TV’s. Screw the food and shelter……….
Uh, “Bob”, remember that it was your dear leader Bush who sent CASH checks twice to people to buy shit. Called it “stimulis” too…..
as we face the impending breakdown of society, someone needs to open up a store that sells the three things that matter in post apocalyptic landscapes: guns, water and women.
There will be plenty of empty Best Buy storefronts to use. They usually feature lots of parking and good locations.
This is what happens when ‘conglomerates’ in any industry create a disparity between the rich and poor by their business practices, eliminating the middle class. American business is committing slow suicide by lobbying for pro-business legislation that consolidates wealth in the hands of a few and eliminates their own customer base. Not that You’ll hear that from the conglomerate-driven media establishment.
Buy, buy, buy. Consume, consume, consume. Even if you don’t need the item. You must have the newest cell phone, TV, car or else you will stagnate and die. Saving is for suckers. Spend. It feels good. It increases self-worth and makes you attractive to the opposite sex. Don’t look where you’re driving, you must answer that text. What if it’s your agent? The world is yours and you deserve it. Obey!
The problem really isn’t spending. More spending is good.
However, much of this market has been fueled by fake money in the form of ridiculous loans. America isn’t really producing anything anymore. People don’t have jobs. Big business is outsourcing their factories overseas and hoarding all the profits. The health care system is overcharging and gouging patients, even in communities where the economy is poor.
This isn’t sustainable.
well, many folks have bought their flat screens, and the assumption that people will endlessly spend another 1k to 3k for new sets year after year, is a seriously bad paradigm. the industry tried to tempt with 3d. with LED backlighting. tried to tempt with internet connectivity. guess what! only so many times the average joe can blow 2 grand on the big central set. best buy, join the recessionary economy. i like you. but maybe “just getting by” for a bit is really the success story, not continued manic attempts for new highs. much money is being sucked out of spending by monthly phone bills of 100 to 220 (smartphone, txts, tethering, minutes) and that is a brand new bigger bill most people didn’t have 5 years ago.
Wait a second…let me see if I understand what Craig Moffett of Bernstein Research is saying. “If the government cuts entitlement programs then it would “have a profound impact on spending patterns,”.
Does this mean that a statistically significant (or, in Moffett’s terms “profound”) percentage of “entitlement program” recipients spend money – money that’s supposed to be spent only on food, clothing, and healthcare – are actually spending money on DVDs, cell phones, home theaters, and iPods?
Is it any wonder why the Tea Party is having such a “profound” impact on politics and elections over the past 2-3 years?
I’m skeptical that this is largely economy driven.
Personally I won’t buy so much as a printer cartridge from Best Buy if I can help it. I had a bad experience with an expensive purchase from them around the same time a couple of friends also seemed to be having their own nightmares with BB’s warranty/service/returns. I know a lot of people that won’t shop there.
Electronic chains may have whittled down but there are still too many buying options to put up with a store that you don’t like or has a bad rep.
Combine that with the fact that people probably do buy DVDs less with the rise in streaming popularity, people that aren’t into photography are generally ‘okay’ just using the camera built into their cell phones so maybe don’t buy as many digital cameras in general, most people don’t care enough about new features on TVs to buy a new one (3D tv? please. I know like one person total that wants one… and still doesn’t care enough to buy one), there hasn’t been much change in the gaming system market in recent years, etc. Gotta make and sell things people actually want to buy.
Best Buy only makes money on accessories and warranty’s. That’s it. Everything else is just for show.
So I shouldn’t have bought that extended warranty on my monster cables?
An HDMI cable will run you between 19-69 dollars at Best Buy. Amazon: 3.99.
Roger C: “I can’t believe that a lot of corporate higher-ups have college degrees and MBA’s. Gee whiz, no kidding, you didn’t think that your ridiculous slashing and outsourcing of jobs, wages and Republican policies wouldn’t lead to this? Without the middle class, you have NO SALES. You and your buddies can’t just hog all the money like you are scoring points in an arcade game. You need workers to produce and consume things. Without them, your little fantasy world collapses.”
Finally some common sense.
If sales are down then cutting CEO should be done cause clearly the CEO isn’t doing his or her job and cutting costs should start at the top.
hmm… I don’t really understand how Best Buy’s dismal quarter correlates to Bernstein Research analyst Craig Moffet’s doomsday prophecy. Couldn’t the issue simply be that people are wising up to Best Buy’s relentless overcharging of simple electronic items? As many commenters here have said, you can find the same item online for at least 30% less. Simple math.
However, I agree with a lot of the comments on here. The economy is suffering and things are going to get really bad. The U.S. does not manufacture or produce anything anymore. We’ve outsourced everything. Managers in corporate America are essentially reduced to writing checks to overseas companies. Our main export is entertainment and most of our movies and TV shows are pretty base. Greed is king in this country. Democrats wants to give money away to unworthy programs and Republicans want to hoard it all up for the rich folks. Very sad…
Two points stand out based on the comments: 1. Moffett’s report/prophecy draws a correlation between entitlement spending and a potential impending(?) crisis in the entertainment business 2. Best Buy is yet another victim in the brick/mortar meltdown since companies like Amazon can offer the same product significantly below BB price points.
I must say, I find it alarming any analyst might suggest the government entitlements somehow supplement discretionary income for goods/services which fall outside boundaries society typically considers intangible. Couldn’t this suggest a perpetual cycle wherein entitlements are being used to prop up a defunct brick/mortar retail system?
I would like to think that entitlements and entertainment retail are mutually exclusive and independent sources of commerce. If, however, that is not the case, I would agree with sentiments that the country is headed for very dark days and current political leadership is not properly addressing the developing situation.
People have finally learned to SAVE instead of buy the first shiny thing they see in an electronics store. They have become frugal, and it’s only going to get worse.
A flat panel TV, a roof top HDTV antenna, Netflix, a few DVDs and a slow broadband connection from a Telco, is really all one needs for home entertainment. Forget Cable, Satellite, and 200 channels you don’t watch but pay for each month.
If you have all of the above why go to Best Buy?
So Wall Street is shocked, shocked!!! that people are choosing food, clothing, and shelter over buying a new flatscreen TV!
Everyone knows BestBuy is Amazon’s showroom; a perverse synergy.