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Time is not on consumer electronics retailer's side

On Tuesday, Best Buy will provide an update on its situation when it releases its first quarter results.

Michelle Siu for The Globe and Mail/michelle siu The Globe and Mail

Consumer electronics retailer Best Buy Co. is in need of a reboot.

The U.S.-based company is losing ground to online and discount rivals, including e-commerce behemoth Amazon.com and Apple Inc., which runs its own stores. Best Buy must find a way to expand its grip on shoppers, who head to its outlets to check out products, but then go online to buy the goods at lower prices.

The chain's chairman and chief executive officer both announced their resignations in the past month. Last week, Richard Schulze, the company's founder, said he will step down next month after an internal investigation revealed he failed to alert the board of directors when he learned of "the close personal relationship" of former CEO Brian Dunn with a subordinate female employee. Mr. Dunn left in April after the board began probing his conduct.

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The allegations couldn't have come at a worse time. Best Buy's stock price – down about 23 per cent since the beginning of the year – and its valuation signal that it will be bankrupt in five to 10 years, retail analyst Bradley Thomas at KeyBanc Capital Markets warned last week.

"The rise of Amazon and Apple has changed how and what people buy, and [Best Buy]has to adapt to survive," he said in a report. "The industry is evolving quickly, and time is not on [Best Buy's]side."

On Tuesday, Best Buy will provide an update on its situation when it releases its first quarter results. The numbers may show improvements because of weak year-ago comparisons, said analyst Scot Ciccarelli at RBC Capital Markets. But the retailer still has to wrestle with the fact that many of its offerings, such as flat-screen televisions and computers, have become commodities stocked by multiple sellers. Shoppers armed with mobile phones can quickly compare prices and turn to the lowest-cost provider.

Best Buy reported in late March that its fourth-quarter loss widened to $1.7-billion (U.S.) while its same-store sales – measuring results at outlets open at least 14 months – fell 2.4 per cent. In Canada, those sales dropped in the mid-single digits.

The retailer also unveiled a major restructuring, including shutting some of its big-box stores, cutting jobs and trimming $800-million in costs in addition to opening 100 smaller locations that largely carry smart phones and tablet computers.

"I am not satisfied with the pace or degree of change we have made up to this point," Mr. Dunn told a conference call at the time.

But the news wasn't all gloomy. The retailer's first-quarter online sales jumped 21 per cent. After stripping out one-time costs, Best Buy's per-share profit of $2.47 exceeded analysts' $2.16 forecast.

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And the prospects aren't all bleak. Some analysts view the departure of the old leadership as a sign that the company can now embark on true transformation. They suggest it can make acquisitions, sharpen prices, further reduce costs, close more big-box stores and stock more exclusive products that aren't carried by Internet distributors.

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About the Author
Retailing Reporter

Marina Strauss covers retailing for The Globe and Mail's Report on Business. She follows a wide range of topics in the sector, from the fallout of foreign retailers invading Canada to how a merchant such as the Swedish Ikea gets its mojo. She has probed the rise and fall (and revival efforts) of Loblaw Cos., Hudson's Bay and others. More

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