RSSBest Buy makes the best of a bad situation
By Angela Gunn | Published December 16, 2008, 3:25 PM
Year-over-year revenue may be down 77%, "voluntary reductions" are underway, and the environment's difficulty level is somewhere between challenging and shriek-inducing. Still, Best Buy's Tuesday earnings call was remarkably upbeat.
The electronics retailer's Q3 2009 (not a typo) ended on November 29, and during that three-month period it reported profits of $52 million, or 13 cents/share. Sales performance on Black Friday was, however, not bad at all, and meant the difference between domestic results being down 6.3% and being essentially flat.
No one wants flat results, but as CEO Brad Anderson pointed out, next to the rest of the market, that's not really so bad, especially since Best Buy did gain market share during the autumn quarter.
That would seem to be not so difficult when your main competitor's in bankruptcy. But company officials say they're not taking anything for granted about where Circuit City's customers will go next. "We're not assuming anything about market share," they said, noting that they're pretty sure Circuit City customers are not unaware of Best Buy's existence, and that it's actually a matter of getting those folks to "give Best Buy a second chance."
Anderson made a point of taking the long view, describing the current in-house planning philosophy as "harvesting some of the seeds we've sown over the past six or seven years" and citing examples from previous economic meltdowns to explain how Best Buy will get through the current trouble. For now, the company will pare back levels of investment, slow (but not stop) rollouts of new stores, cut capital spending by 50%, and work with suppliers -- leveraging the company's sheer size, as other behemoths such as Wal-Mart do.
The employee buyout offers are part of that as well. The company says it will offer 7.5 months of severance pay to corporate employees taking the offer, or 12 months if age plus years of service add up to 60 or more. Best Buy will also pay for a year of health-care coverage, a year of life insurance, and for outplacement services as wanted. No official target number of buyouts has been given. Once the uptake on the buyout offer is known -- the deadline is January 5 -- there'll be decisions about layoffs.
On the positive side, Anderson cited improvements in the company's approach to Black Friday, many of which he says were due to six months' worth of planning based on what the company learned last year. He said that the company's renewed focus on "full-service bundled solutions" is paying off with customer loyalty, and cited the home theater, computing, digital imaging, and games segments as top performers.
The company offered earnings guidance revision last month, and Anderson stuck by the rather wide numbers -- $2.30 to $2.90 -- on Tuesday's call.
...and work with suppliers -- leveraging the company's sheer size, as other behemoths such as Wal-Mart do...
This might be good for Best Buy and Wal-mart, but this is part of the reason
why the economy is in the shape it's in. Wal-Mart bully's vendors into lowering their prices, which means they are forced to cut corners, increase efficiency, and also cut into their own profits, in order to make them happy, so they will keep buying from them.
What this does is cause these vendors to cut workers, and possibly even close plants, if they keep losing money, or can't compete with factories overseas. This also runs Wal-Marts competition out of business...which means more job losses.
There is an upside to this. Operating at higher efficiency is better for the environment overall, but Wal-Mart is more interested in higher sales, higher profit, and controlling the market, than helping the environment. I think the Negatives outweigh the positives here.
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|You would expect that product manufacturer's are going to have to take a hit one way or the other. Either they are going to have reduce their wholesale cost of their products or their sales will go down. Due to the rather low margins that the resellers of consumers electronics have they can't really afford to cut their prices much and still remain profitable.
The manufacturers aren't in business to keep people employed. They are in business to sell products that people want to buy at a price that is profitable to the company.
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|"The manufacturers aren't in business to keep people employed. They are in business to sell products that people want to buy at a price that is profitable to the company."
There is a phrase covering what is missing in this sort of thinking.
Enlightened self-interest.
You can't sell what you make if no one is making enough money to buy it. When Ford started one of the founding concepts was that the employees would be able to afford the products they made. Occasionally companies need to remember this. Pure libertarian laissez-faire capitalism is short sighted at best.
Yes, companies need to make a profit. But they can't do that if they force all the manufacturing to move to countries without Best Buys and Wal-Marts and then fire their customers.
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