Retailers Pursue Market Share Over Margins
Best Buy saw its share price slip more than 15 percent this week despite posting its first quarterly same-store sales gain in two years. The reason the stock took a Wall Street hit was that Best Buy’s quarterly profits were way down as the chain used heavily discounted items as well as the offer of free shipping on online orders to help it try and recapture lost market share.
Best Buy CEO Brian Dunn, according to reports, told analysts on a conference call, "Value is critically important to consumers right now and there’s nothing more important to us than our customer franchise. So maintaining and growing that share in the places where there is growth is critically important to us because it sets up, and has historically set up, for us our strategies around connections and services and all the value-added things that we do better than anybody else."
While Mr. Dunn made the case for focusing on share (others including Amazon and Walmart have done so in the past), analysts questioned whether Best Buy and other retailers were on a slippery slope.
"I think Best Buy is the canary in the coal mine. I think we’re going to hear retailers across all categories, with the exception of luxury, reporting depressed margin for the holiday time period," Joel Bines, managing director of AlixPartners, told Reuters.
- Best Buy: Market share over profits – Star Tribune
- Analysis: Best Buy previews other retailers’ margin hits – Reuters
- Best Buy net income declines in 3Q as slight revenue rise is offset by restructuring costs – The Associated Press/The Washington Post
- On the Call: Best Buy CEO Brian Dunn – CBS News
Discussion Questions: Do you think that retailers, as a general rule, will post higher sales and lower profits this holiday season? Are chains such as Best Buy and others making a mistake by focusing on maintaining or growing market share even if it means sacrificing profit margins?