For the month of December, Best Buy (BBY) reported revenues of $8.5 billion, up 13% from December 2008. Same-store sales jumped 8.2%, and domestic online sales increased by 34%.
A major component of Best Buy’s increase was sales in its home office category, which rose 28.5% year-over-year. The company noted especially notebook computers and mobile phones. Best Buy sells notebooks from Dell (DELL), Hewlett-Packard (HPQ), Apple (AAPL) and other computer makers. Best Buy also sells the Google (GOOG) Android-based phones from Motorola (MOT) and Apple’s iPhone. It’s worth noting that Best Buy did not mention the super-cheap netbook devices as a driver of sales in this category.
Consumer electronics sales were up just 4.5%. Best Buy includes televisions and game controllers in this category, and these results are not particularly good news for Sony (SNE) or Nintendo.
In its third fiscal quarter ending in November 2009, domestic consumer electronics accounted for 39% of the company’s revenues, flat compared with the previous year. The domestic home office category accounted for 33% of revenues, up 1% from a year ago. Internationally, Best Buy’s home office category accounts for 55% of revenues, more than three times the revenue from consumer electronics.
Going forward, the issue for Best Buy is how strongly it can compete against Amazon (AMZN) and Wal-Mart (WMT). Despite its strong showing in online sales, Best Buy trails both competitors according to research firm Foresee’s December ranking of customer satisfaction with online retailers.
The December increase in online sales could be attributed to consumer brand identification of Best Buy with electronics. If that’s the case, Best Buy could see softer online sales as Amazon and Wal-Mart continue to push the online envelope. Brand recognition will only carry the store so far in a pitched battle with more well-armed rivals.
Amazon’s rumored venture into bricks-and-mortar stores and Wal-Mart’s concerted push into online sales could also have a negative impact on Best Buy’s top line numbers. And Best Buy’s cash on hand at the end of August is a relatively tiny $668 million when compared with Amazon at about $2.5 billion and Wal-Mart at more than $6 billion.
Best Buy is also having some issues with gross margins, which were slightly lower in the company’s third fiscal quarter. The declines were small, but the direction is wrong. The company does expect to experience an increase of 10 basis points in gross margins for its full 2010 fiscal year ending in February.
The demise of Circuit City has only cleared a temporary path for Best Buy. Now it’s playing against the big boys, and it is almost certainly in a struggle for its very life.
Note: Paul Ausick works for Wal-Mart.
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