Best Buy has been hit hard by the pricing advantage that online-only merchants like Amazon hold over brick-and-mortar retailers. The electronics retailer suffered through a bleak 2011 and 2012 with falling stock prices and debate over whether their business model could be successful in the current marketplace.
In order to keep pace with its online rivals, Best Buy introduced price match in early 2013 and as a result saw investor confidence soar and its stock price rise steadily throughout the year. In fact, Best Buy's strategy even got its CEO named as one of RIS News' Best Retail CEOs of the Year for 2013.
However, with the release of its holiday sales numbers last week, it appears that the electronics retailer went too far with its promotional efforts. Total revenue was down $300 million compared to the 2012 holiday numbers, with same store sales down .8% across the board. The numbers are alarming — at the very least the price match guarantee should have improve the sales number even if profits ultimately suffered, but Best Buy was unable to even increase sales.
“When we entered the holiday season, we said that price competitiveness was table stakes and an intensely promotional holiday season is what unfolded,” said Hubert Joly, Best Buy president and CEO. “It was imperative that we live up to our customer promises – and one of these promises is to offer our customers competitive prices. This investment in pricing did come with a higher-than-expected cost, and we now estimate our fourth quarter non-GAAP operating income rate will be 175 to 185 basis points lower than last year."
The negative sales number prompted a large-scale stock sell off and an over $15, and counting, drop in share price. The retailer will likely clog through 2014 with its focus set squarely on the 2014 holiday season, its next big chance to prove to its customers and investors that it can compete with its online-only rivals. A nugget of positive news in the doom and gloom of the holiday sales numbers was the fact that comparable online sales grew by 23.5%.
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