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Double-digit gaming decline flattens Best Buy's December profits
Double-digit gaming decline flattens Best Buy's December profits
January 9, 2012 | By Eric Caoili

Amid predictions that the electronics retailer is gradually going out of business, Best Buy reported flattened profits for the holiday season, held back by a significant drop in its games category.

The diminished video game sales continues a downward trend for the category in Best Buy's recent quarterly reports. Other store chains have suffered similar struggles -- Toys R Us attributed its Q3 losses to an "overall softness across the video game industry."

Though Best Buy's revenues during December 2011 were about the same year-over-year at $8.4 billion, the company said that "gaming and digital imaging both experienced low double-digit declines in comparable store sales."

Those losses, along with single-digit declines for television sales, more than offset gains made in other categories such as tablets, eReaders, and smartphones, which delivered "strong growth" in the low triple-digits in December.

Best Buy admitted that it saw customer traffic also drop at its brick and mortar locations, as sales at stores that were open for at least two years fell by 1.2 percent. Online sales, however, jumped year-over-year by 26 percent.

The news follows days after the company received plenty of negative media attention sparked by a critical Forbes article claiming Best Buy is going out of business gradually due to its poor customer service experience compared to online retailers.

Best Buy CEO Brian Dunn, though, remained upbeat about the company's sales: "We built off of share gains in the third quarter to deliver December sales that we believe compared favorably to the retail [consumer electronics] industry."

"Based on our performance in December we continue to expect to achieve our annual guidance," he added.

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Dustin Clingman
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I love that Best Buy an retail in general are blaming the games category for their profit declines. Here's a tip: Service Matters! People aren't buying fewer games, they are just getting them from other places like Amazon, Steam or iTunes. If Best Buy had the Gamestop equivalent of knowledgable employees and good prices ( tongue firmly in cheek), then they would have a lot fewer complaints about their sales in Q4.

Eric Geer
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I agree---it's a lack of knowledge/service , and IMO a lack of inventory....they seem to always have plenty of the (pardon my french) shit titles that no body buys, and none of the good games that people are looking for(except the brand new AAA titles--they always seem to have those).

Adam Bishop
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I'm not a big follower of business news, but can someone explain this juxtaposition to me:

"Amid predictions that the electronics retailer is gradually going out of business, Best Buy reported flattened profits for the holiday season."

So . . . a company that continues to be profitable is predicted to be heading out of business . . . why?

* * *

As an unrelated question, I wonder how much of the fall in video game sales at a lot of these kinds of stores is really just the death of the music game genre. A few years ago it was impossible to head into a Best Buy around the holidays without seeing a huge Rock Band display and at least one or two people buying the big bundle. Those things retailed for something like $150 each. So if you take out the music games and compare all other software sales, I wonder if the trend is really down? With games like Modern Warfare 3, Battlefield 3, Uncharted 3, Skyrim, and Batman: Arkham City all selling quite well, I find it hard to believe that software sales generally speaking are really in that bad shape.

Chris Hendricks
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Welcome to the world in which companies can't just be making money, they must be making more money than they used to.

Alex Leighton
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The article mentioned seems to think that Best Buy has poor customer service which will lead to their downfall. I think the writers just need to go to anger management though, since they left the store "fuming" because they were approached and asked a few questions by a salesman.

Thing is, I can't buy a tv from Amazon, take it home and try it out and decide if I like it, and possibly return it, all in the same day. With Best Buy I can, and I also don't have to deal with negligent delivery people and greedy customs. I just don't get people who think online shopping is better, it's been nothing but misery whenever I've tried it.

So yeah, I don't think Best Buy is going anywhere, especially with recent things like the viral video of the FedEx guy throwing a package over a fence, and all the similar videos that have come out of the woodwork since, I know several people who saw that and were bloody glad to still be brick and mortar dinosaurs.

Jason DuPertuis
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1) Profits, yes, growth, no. At the very least I believe you want growth to match inflation, since otherwise your profits are effectively falling.

2) Two of their (presumably) bigger money hauls had double-digit falls in sales.

3) Per-store sales are dropping, which is kind of important for a physical store chain.

It's not falling from the sky in a bright ball of flame, but the point is that there are signs that the engines might be sputtering.

Ian Uniacke
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Alex: Are you an employee of Best Buy? "I think the writers just need to go to anger management though, since they left the store "fuming" because they were approached and asked a few questions by a salesman." This seems to indicate that you were there? And if so is it not legitimate to be upset as a reporter if the business you're investigating seems clearly to be trying to avoid press?

Either way you clearly have no idea what you're talking about in economic terms at least.

Adam: The reason why a company that continues to be profitable is predicted to be heading out of business is because the sales were flat. Taking inflation into account that means their sales are dropping. Anything less than (approx) 3% growth is considered recession. Making less money (eg 0% growth or less) is considered depression. I'm not a professional economist so don't quote me on those numbers but that gives you a rough idea, hopefully that answers your question.

Steven Ulakovich
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Brick and mortar is paying the price for thinking they can continue to operate with workforce's that are just about skeleton, with very little training in product knowledge. Retailers are hoping that their workforce goes out on their own to find out about the products they sell, with just the very bare minimum being offered by the retailers.

And Adam, right now the industry is very top heavy. In generations past, as hardware revenue's went down, software revenue's would keep pace to even things out. You are not getting that now. Yes, the blockbuster's are stilling selling millions, but the mid range titles that do not have the multi-million dollar marketing budgets are getting cannibalized.

A simple fix, in my opinion, is that the industry has to start using the entire calendar year to release their games, and not be so dependent on the holiday shopping seasons.

As for the brick and mortar, this will be a very important year. They either have to look at themselves and change how they approach customer service and proper product knowledge for the team, or begin to move operations to a more online-centric business model, treating their locations as mere warehouses.

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Best Buy is rumored to be going out of business? WTF?

Jonathan Murphy
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I know a friend that works there. Too many people on the floor and too few on the register. 3 registers for a space that massive? Why?!

James Barnette
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