Please Note: Blog posts are not selected, edited or screened by Seeking Alpha editors.

Is “Best Buy” a Good Buy or Good Bye?

|Includes:, Inc. (AMZN), BBY

As I determine whether the internet is the doom and gloom for once powerful brick-and-mortar stores, I am looking for signs of resistance and struggle. I wrote once that old business models used by stores like Blockbuster and Borders were too constricted, the majority of revenue stream came from one source: sales of hard product. To top that off, predicting the actions of retail customers is not akin to hoarding sheep, you cannot direct people into your store with just good prices, or just good products, you need a unique combination in order to get your market share.

In one of my last posts, I connected the dots between NetFlix and BlockBuster, and and Borders and Barnes and Noble (B&N).  Though Borders and B&N definitely share some symmetry in that they ultimately sell books from storefronts, B&N holds a bonus feature: the Nook. The little e-reader got a giant upgrade this past week to Google’s Android OS. And although the upgrade got off to a rocky start with a few bugs and glitches, the problem was soon corrected and Nook customers could use the device to surf the web and check their email. Although this is no lifesaver for B&N, this indicates they hold value now and could make them a takeover target for the acquirer to gain B&N customers. The two outcomes I foresee for B&N are extreme; the first is bankruptcy, the most likely scenario, and with no profit for the past few quarters, this result is fast approaching; the second is M&A, B&N can only cross their fingers for this outcome because attempts to sell themselves have been futile since last summer.

As an extension to the havoc and chaos and the internet has caused, the next casualty may be technology retail giant, Best Buy (NYSE:BBY).  Shares of BBY jumped off a cliff in mid December, shedding 17% in one day after earnings missed expectations and guidance for 2011 was lowered. The shares lost another 22% from December to April before recovering back to a reasonable trading range around $31. BBY has stepped forward, announcing plans to scale back on the size of their gargantuan showroom size stores, and intends to roll out smaller storefronts with an emphasis on selling mobile phones from a wide spectrum of carriers. The question becomes, how long does BBY have until their strategy runs out of legroom?

The move to reducing store size is a defensive move nonetheless and it does not seem that BBY management has any aggressive tactic to retain customers from zooming off to shopping online. It was once argued that BBY was unlike other retailers, they operated in the technology market that consumers did not fully understand and thus shoppers needed expert opinions and advice. Therefore having BBY sales representatives made sense, they were a necessity to consumers, ready to answer specific questions, and consumers were ready to listen and to make purchases based on “professional” information. But the market has changed, with websites such as and, reviews, comments, opinions, and even price comparisons can be found all over the internet. The once uninformed consumer is now a knowledgeable shopper armed with information and precision on the exact product they need, so much in fact that they are now on the prowl for low prices. BBY cannot compete with lower prices of websites such as and, they have higher costs for their storefronts, labor, and huge advertisement fees.

I am under the impression that BBY has limited time left at the pace they are operating. Their defensive move to scale back is more of a retreat. It will lower costs which can maintain a steady profit margin for now, but as for revenue and customer base growth, they will need to draft up much more exotic ideas. I contend I am long term bearish on BBY.

Disclosure: No position in BKS, BBY, AMZN, NFLX.