Seeking Alpha
Research analyst, long/short equity, tech
Profile| Send Message| ()  

Best Buy (BBY), which competes primarily with Wal-Mart (WMT) and RadioShack (RSH) after the closure of Circuit City during the recession, is the largest specialty retailer of consumer electronics in the US. The retailer enjoys a market share of more than 22% in the US consumer electronics market.

The company has seen success with its Best Buy Mobile stores. Best Buy leveraged Carphone Warehouse’s (CPW) experience running independent mobile phone stores to make Best Buy Mobile work in the US. We estimate that Best Buy Mobile’s stand-alone stores account for about 6% of the $42 Trefis price estimate for Best Buy’s stock.

Best Buy Mobile Stand-Alone Stores Are Growing at a Brisk Pace

Best Buy Mobile is integrated into many existing Best Buy locations and the company’s stand-alone Best Buy Mobile stores are growing at a fast pace – from a count of 5 in 2007 to 74 in 2009. We expect this store count figure to cross 200 by the end of the Trefis forecast period.

Best Buy has traditionally struggled to tap share in the mobile phone market on its own. Since the inception of Best Buy Mobile in 2006, the company has been able to more than double its mobile phone retailing market share from 1-2% to about 4% in 2008. The increase in share was driven primarily by the integration of Best Buy Mobile within existing Best Buy stores; however, stand-alone Best Buy Mobile stores will drive growth going forward.

Revenue per Square Foot for Best Buy Mobile Stand-Alone Stores Is Increasing Despite Recession

Revenue per square foot is a key operating metric for retailers. This figure for Best Buy Mobile stand-alone stores in the US has grown from about $515 in 2006 to $750 in 2009.

We expect the rising trend to continue in the future and reach around $880 by the end of our forecast period as a result of:

1) Growing demand for mobile phones and computing devices (despite weak economy)

Best Buy Mobile goes beyond just mobile phones and offers other forms of mobile technologies like notebook computers and hand-held internet devices. The company maintains that it is seeing sales growth in mobile phones and computing devices, where demand remains high. We believe that consumer need for entertainment, convenience and connectivity will continue to keep demand high.

2) Best Buy increasingly luring mobile phone buyers

Best Buy collaborated with Google in late 2009 to launch a mobile-centric website and a series of mobile applications (like a location-aware shopping service) to increase convenience for consumers. We expect the company will continue to be the leading retailer of the latest mobile products. For example, Best Buy offered pre-sells for Motorola smartphone, the Droid, a week before its official launch.

Disclosure: No positions

Source: Best Buy Taps Into Lucrative Market With Mobile Stores