Best Buy Co., Inc. (BBY), Staples, Inc. (SPLS): Are Big Box Stores In Panic Mode Yet?

Page 1 of 2

Best Buy Co., Inc. (NYSE:BBY)Best Buy Co., Inc. (NYSE:BBY) is attempting to reshape itself as a new company, but the firm has challenging work ahead in an increasingly Web-focused consumer goods market.

Along with the transition under its new CEO will come some difficult times for the company, and it could be a while, if ever, before profits really surge. Part of the growing pains came last year when the company lost $417 million. A similar loss was echoed by Staples, Inc. (NASDAQ:SPLS) in the same year when that firm lost $161 million.

The common denominator

Last year, overall online sales in the consumer sector increased by 16% to account for nearly 5% of all items sold in the industry. That’s taking much of the sales away from companies like Best Buy Co., Inc. (NYSE:BBY) and Staples, Inc. (NASDAQ:SPLS). The new CEO at Best Buy Co., Inc. (NYSE:BBY), Hubert Joly, is aiming to shrink stores, offer a price-match guarantee and do a better job at training staff. However, he didn’t throw increasing Best Buy’s online presence into the mix.

In addition to last year’s loss, Best Buy was in the red last quarter when it lost $81 million, and a company spokesperson said that will likely happen again next quarter. However, the firm is paying for restructuring. It sold a stake in Best Buy Co., Inc. (NYSE:BBY) Europe and has other restructuring costs. Outside of those expenses, the firm was actually profitable, though revenue did drop by 10.5% to $9.4 billion.

The difference between the firms

Unlike Best Buy Co., Inc. (NYSE:BBY), Staples, Inc. (NASDAQ:SPLS) is focusing much of its attention on integrating online shopping with its stores. The firm is already the No. 2 Internet retailer, behind, Inc. (NASDAQ:AMZN). On June 20, Staples, Inc. (NASDAQ:SPLS) announced the launching two of its “omnichannel stores,” which are attempting to combine online sales with brick and mortar sales. As part of the features, the stores have large kiosks, some of which can help customers buy from the site. Other kiosks provide detailed information about products and where people can find what they are looking for. Even if earnings don’t increase by much due to the new model, the share price could go up because the store repurchases many of its own shares. For example, from 2008 to 2012, the company bought 4.9 million of its own shares. That gives the share price stability.

Page 1 of 2