Best Buy to shutter 50 stores as Apple's iPad strains margins

Posted:
in iPad edited January 2014


Electronics retailer Best Buy plans to close 50 stores and cut $800 million in costs, in response to low margins in the mobile computing space from devices like Apple's iPad.



Best Buy's plans also call for the company to cut about 400 positions in its corporate and support structure, allowing it to reach $250 million in reductions this fiscal year, The Wall Street Journal. The company currently has about 1,100 full-fledged retail stores, but about 50 of those will close as part of the reductions.



The report noted that the popularity of Apple's iPad has contributed to Best Buy's struggles, as the device carries "relatively low margins" for the retailer. As a result, its mobile computing sales business has seen "strained margins" of late.



Best Buy reported a loss of $1.7 billion for the quarter that concluded on March 3. It plans to remodel some of its key stores in what it calls a "Connected" format designed to sell smartphones and push video and broadband services.



The company also plans to reduce the footprint of its "big box" stores by 10 percent in the coming years. It has also increased its online offerings in an effort to better compete with retailers like Amazon.com.



Last week it was revealed that Best Buy sells nearly as many iPhones in America as Apple's own direct sales. A poll of iPhone buyers conducted recently found that Apple's retail stores and online store accounted for 15 percent of all U.S. iPhone sales, while Best Buy represented 13 percent of sales.











Best Buy's iPhone sales are significantly higher than Apple's other retail partners, which are Walmart, Target, Radio Shack, and Sam's Club. Together, they were found to account for just 3 percent of iPhone sales in the U.S.



Many Best Buy locations have dedicated Apple sections where other products like the iPad, Macs, and the Apple TV are sold. The "store within a store" concept is found at over 600 Best Buy locations, representing more than half of its retail outlets in the U.S.



[ View article on AppleInsider ]

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Comments

  • sflocalsflocal Posts: 3,455member
    As usual, blame Apple. Why not blame the rest of the computing industry for constantly coming out with complete garbage that no one wants to buy?
  • gatorguygatorguy Posts: 14,662member
    If Apple's isn't allowing enough of a markup for Best Buy to realize an appropriate profit, then they should shutter the dedicated Apple area. I don't think Apple is too concerned whether they have a large retailer presence outside of their own company stores and on-line anyway.



    Best Buy isn't going to be successful, at least in the near-term, in convincing Apple to share more of the device profits so why fight it? Really no advantage to Apple in allowing a larger discount as they'll sell everything they planned to anyway.
  • jd_in_sbjd_in_sb Posts: 1,268member
    IPad is a tiny fraction of Best Buy's sales. There is no way that the iPad is "straining" anything.
  • jragostajragosta Posts: 10,473member
    Quote:
    Originally Posted by jd_in_sb View Post


    IPad is a tiny fraction of Best Buy's sales. There is no way that the iPad is "straining" anything.



    Furthermore, people who come in to buy an iPad have, on average, more money than the average shopper. Apple is attracting well-heeled customers to Best Buy.



    I agree that it's ridiculous to blame the iPad. If they can't make money on the iPad, then just don't sell it. They would still have the other 999,999 products in their store to sell.



    Furthermore, even the 'facts' presented here are distorted. While it may be true that Best Buy sells nearly as many phones as Apple Stores, there are something like 8 times as many Best Buy stores, so it's not that many phones per store.



    Finally, if you go to the original article, it's clear that many other factors are getting the blame:

    http://www.reuters.com/article/2012/...9?feedType=RSS

    - Total sales are down across the board. Forget margins, their sales are off - which will hurt profits

    - Best Buy stores are increasingly serving as free showrooms for online retailers. That is, customers view the product at Best Buy and then buy it online.

    - Best Buy offered deep discounts across the board last quarter - presumably to try to bring in additional sales to address the previous point

    - Best Buy big box stores are too large and expensive. Plans are to close 50 large stores and open 100 small ones.



    Note that in the Reuters article, the iPad isn't mentioned at all.
  • plokoonpmaplokoonpma Posts: 256member
    LOL Really?

    This is a nice joke, at least the iPad fly out of the shelf compared to the android product they have to put on sale. If their mobile division sucks then they can get rid of it and just sell Apple products and will have a small profit.



  • orlandoorlando Posts: 601member
    The iPad might not offer BestBuy great margins but the killer is online competition. Why go to a BestBuy store when Amazon is usually cheaper?
  • ardrillingardrilling Posts: 4member
    Best Buy's sales have been steadily decreasing for a while now. This is not at all the iPads fault. In fact, the fact Best Buy can sell the iPad, and other Apple products and accessories for that matter, has probably increased revenue.
  • technotechno Posts: 585member
    The problem is store saturation. There are just too many in close proximity. Do I really need 4-5 within 10 miles of me?
  • charlitunacharlituna Posts: 7,069member
    Quote:
    Originally Posted by sflocal View Post


    As usual, blame Apple. Why not blame the rest of the computing industry for constantly coming out with complete garbage that no one wants to buy?



    Because the truth doesn't get hits.
  • mstonemstone Posts: 11,510member
    Welcome to Circuit City.
  • thataveragejoethataveragejoe Posts: 830member
    What an atrocious headline that's almost an outright lie.



    Best Buy took a few one time charges this quarter leading to the loss (otherwise it was positive) and intends on restructuring and opening 100 small mobile focused stores, in addition to closing the 50 underperforming stores. Best Buy's own report attributed the fortune change to the shift of buying big electronics online and a consumer shift to mobile devices. Apple was barely a footnote in the whole thing.
  • charlitunacharlituna Posts: 7,069member
    Quote:
    Originally Posted by jragosta View Post


    I agree that it's ridiculous to blame the iPad. If they can't make money on the iPad, then just don't sell it.



    They need it to bring folks into the store to get them to buy other things
  • jragostajragosta Posts: 10,473member
    Quote:
    Originally Posted by ardrilling View Post


    Best Buy's sales have been steadily decreasing for a while now. This is not at all the iPads fault. In fact, the fact Best Buy can sell the iPad, and other Apple products and accessories for that matter, has probably increased revenue.



    The bolded part is not true:

    http://retailsails.com/monthly-sales...ry/bby/annual/



    Best Buy's total sales have increased every year for the last 5 years. Same store sales were down last year, but that was only the second time in 5 years.
  • jragostajragosta Posts: 10,473member
    Quote:
    Originally Posted by charlituna View Post


    They need it to bring folks into the store to get them to buy other things



    Then they should stop blaming the iPad for their problems and cite it as part of the solution -- which, if you ignore the flamebait AI headlines, is closer to the truth.



    There's nothing in their official release which blames the iPad. In fact, they're building 100 smaller stores with an emphasis on mobile devices, so they clearly see mobile devices like the iPhone and iPad as part of the solution rather than the problem.
  • poochpooch Posts: 768member
    Quote:
    Originally Posted by AppleInsider View Post


    [...] in response to low margins in the mobile computing space from devices like Apple's iPad.



    perhaps it's also in response to the fact that they have no idea how to deal with customers. their policies and their customer service is abysmal.



    as others have said, i do hope they keep their stores open ... i like to look at stuff before i buy it elsewhere.
  • theothergeofftheothergeoff Posts: 1,911member
    Quote:
    Originally Posted by jd_in_sb View Post


    IPad is a tiny fraction of Best Buy's sales. There is no way that the iPad is "straining" anything.



    yes... but.



    The iPad ecosystem, which includes AppleCare, AppStore, iTunes, iBooks, NewsStand, all the rest of these directly compete with the other shelves in Best Buy, including their Warranty, SW sales, Music Sales, Movie Sales, Monitor Sales, etc, etc etc.



    In short, iPads don't feed the rest of the store, like PCs do, or even TVs do.



    There are very low margins on PCs/TVs, but the fact that you buy the software, the printer, as well as buy the music (CDs), Movies (DVDs), accessories, powerstrips, et al. iPads do not drive that level of 'upsell' purchase.



    Heck, I'm thinking the biggest ticket items you buy for an iPad would be an AppleTV and/or a smart cover. Both of which are likely having Apple controlling the same margins as the iPad. In short, you're not making it up on Margin.



    But I agree, BestBuy is competing poorly online, and on their own brands, which drive profits now. I worked for BestBuy.com at one point, and it's was argued at the time, as a 'loss leader' or a 'very expensive ad site' for driving price comparisons against amazon. The issue is Amazon is a 'buy anything site, and with free shipping, and it's competitive pricing with it's virtual storefronts, Best Buy is trying to subsidize the big-box stores to no avail.
  • solipsismxsolipsismx Posts: 19,566member
    I'd think online shopping is the reason for B&M stores are struggling. Now Best Buy did start to offer better customer service a couple years ago as a way to offset their inability to compete with online prices, and while a slid effort, was bound to fail. The stores are simply too large to offer the intimate shopping experience needed to make it work.
  • melgrossmelgross Posts: 28,666member, moderator
    Quote:
    Originally Posted by Gatorguy View Post


    If Apple's isn't allowing enough of a markup for Best Buy to realize an appropriate profit, then they should shutter the dedicated Apple area. I don't think Apple is too concerned whether they have a large retailer presence outside of their own company stores and on-line anyway.



    Best Buy isn't going to be successful, at least in the near-term, in convincing Apple to share more of the device profits so why fight it? Really no advantage to Apple in allowing a larger discount as they'll sell everything they planned to anyway.



    They just point out Apple because, as usual, they're so large and well known. Retail is a low margin business overall. It always has been, at least for the past 40 years or so. Long gone are the days when department stores could charge list prices and premium service charges. People now just go for the lowest price.



    As we know, BB isn't exactly a place people love to shop in. It's more likely that their inefficiencies and the failure of other products to take off are causing this problem for them. That, and the growth of Amazon. Why go into a store when you can buy something from the comfort of your own home?



    We look at the very low margin Tv business, the failing of the DVD and BlueRay business's, the disappearance of CD's, and the drop in HDD and memory pricing as being contributors to their problems.



    Does anyone really think that companies like Samsung, Dell, HP and others give BB higher margins than Apple? If you do, then you're dreaming.
  • kent909kent909 Posts: 641member
    Best Buy does not need to make money on Apple products. The other day I was in a hurry to get a new screen protector for my iPhone and stopped at a Best Buy to pick one up. When I was told it costs $29.95 for a single protector, I told them no thanks and bought a 5 pack on Amazon for $5 and waited a few days to get it.
  • macxpressmacxpress Posts: 1,834member
    Maybe if BestBuy didn't pester people while browsing the store then they'd do better. You can't walk 2 feet without someone saying "Can I help you with something?". Then when you do ask a question they don't know their @ss from a hole in the ground. Also, if they didn't con people into their stupid overpriced services they may do a little better as well. I cannot stand blacktie protection and the other crap they pull with people with their antivirus services, etc, etc.



    The only thing I go in Best Buy for is to look at a product and then I go buy it elsewhere.
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