Despite a solid holiday season, Best Buy is now warning its profits are coming under pressure in large part because of weak demand. Bobbi Rebell reports.
Trying its best has not been working over at Best Buy- the top US consumer electronics retailer warning- comparable sales will be lower than expected for the first half of its fiscal year, as will operating margins. The problem- after getting a sales jolt from hot items like the new iPhones and large screen televisions over the holiday season, consumers just aren't that interested in staples like computers and tablets. Shares plunged on the news. And while recent strategies like store upgrades are have been well done- they are not enough says Wedbush Securities Michael Pachter: SOUNDBITE: MICHAEL PACHTER, MANAGING DIRECTOR, WEDBUSH SECURITIES (ENGLISH) SAYING: "They are doing an excellent job at converting the traffic that actually is in their store. they are not doing a good job of bringing new traffic in and they are not doing a good job of bringing back people who used to shop there." Pachter says the big problems come when consumers join Amazon Prime- they still shop at Best Buy- but move a growing portion of their purchases to Amazon. SOUNDBITE: MICHAEL PACHTER, MANAGING DIRECTOR, WEDBUSH SECURITIES (ENGLISH) SAYING: "It's the titanic. They are heading for the iceberg and they are doing everything they can to slow the ship and maybe glance off the iceberg instead of crashing into it head on. But I don't think they are going to avoid it. I think Amazon is the iceberg. And unless these guys convert into an online store and they are not really doing that I don't see how they stave off that competition. " But not everyone agrees. Moody's Investors Service's Charlie O'Shea SOUNDBITE: CHARLIE O'SHEA, SENIOR ANALYST, MOODY'S INVESTORS SERVICE (ENGLISH) SAYING: "There has been a lot of success at Best Buy. We have seen the company morph into more of a multi-channel retailer. They have been generating significant amounts of cash. We think the company is well on its way." O'Shea believes the brick and mortar stores will in the end give Best Buy an advantage, as new services like buy online, pick up in store, start to gain traction with customers that want instant gratification.