Best Buy to shutter 50 stores as Apple's iPad strains margins - Page 2

Mel, if you say some people or even most people, I might agree with you .... but I think there is ample evidence with what just Apple is doing to show that a company can make very good profits by concentrating on quality, not price. The same thing happens with a lot of so called niche companies. They manage to carve out very nice profits from small market share, thank you very much .... because they are not trying to be all things to all people. IOW .... they identify what they are good at .... and then focus almost exclusively on those qualities. Big box stores seem to focus solely on volume. Big fail, imho.

Further proof that when your focus is on the lowest retail price .... you will eventually lose, in most cases.

While I don't know for a fact that the PC profit margins are higher than Apple for BB, but based on my personal experiences and observations when I visit a BB store and watch as the staff continually try to "switch people" from buying a Mac to buying a PC, I strongly suspect that is the case.

What truly amazes me is that, after all this time of watching Apple climb to the top in all the truly important metrics, other companies still don't seem to "get it" when they try to imitate Apple's success. Simply amazing.

If the iPad had more margin Best Buy would drop the price. Best Buy often sells Macs for less than Apple and I know Macs don't have a lot of margin for resellers to begin with. Best Buy isn't the victim of anything but what it does to itself.

So lately I've had to go to BestBuy a lot to get something sooner than I would only. On three difference occasions, I went and asked for help. The people are clueless. I waited for 30 minutes to get help on a camcorder (and that person didn't really know anything). I ended up researching the products on Amazon on my iPhone. Then when I made a purchase decision, I learned (as the rep looked though all the cupboards) that they didn't have my product in stock. In fact they didn't have the entire BRAND in stock! When I asked about just buying the floor model, he said he can't.

Now why would you show something that you don't stock???

Of course then he said "I can order it for you". Um. No. Why would I order it to have to pick it up again when I can just have Amazon send it to my house. Besides, I already had the product page bookmarked by this time.

Just yesterday I went to purchase a projector. Again, I went to BestBuy. I checked the products and found a 720p version on sale for $399!!! Woo hoo! Amazingly, the product was in-stock and he rang it up. It came up as $599. Um... no, it was on sale. I showed him the product and the sign and he said "oh, no, see...we put them in the wrong place".

Did I mention I tried to buy an Android tablet for development there and how clueless the sales people are?

I eventually just went to Staples and purchased the projector. Same price, but without the stupidity.

Based on what I do know about what the margins for Apple resellers are I'd say that, yes, margins for retailers on Apple hardware are lower than Samsung, Dell and HP and always has been the case. You can't sell an Apple product for anything other than the given price and you can't create your own deals. It's part of the reason the neighborhood Apple Authorized Reseller is gone from Main St.

And it's one reason why Apple was wasting their time in brick and mortar consumer stores such as CompUSA, CC before there were Apple Stores and especially before IOS became such a runaway success, though naturally not the only reason. If those stores made more of a profit on Apple in the pre iPhone/data contract era the Apple tables wouldn't have been the ghost towns they were. A clueless salesperson didn't sway you past it because of any misguided anti-Apple prejudice necessarily.

But I'm completely in agreement that this BB story obviously has little to do with Apple and their margins and everything to do with Amazon and other online kin.

Don't they sell Kindle Fire or Samsung Galaxy Tab?

Surely all the money they make on them would make up for the loss of selling so many iPads.

I was doing some reading at other sources and just came to the same conclusion. AI looks to have come up with this pretty much out of thin air. BB didn't place blame on Apple's iPad, nor did Reuters who initially reported this story.

Best buy isn't. As you say it's AI hit baiting, nothing more or less

If you believe the stories, no. They have them in the stockroom but no one is buying them, or at least not keeping them

No, you can't sell an Apple product for a dollar more or less than what Apple says you can. It has never been within any store's ability to sell any Apple widget for $20 less than a competitor. The only reason BB takes on low margin items is to upsell service contracts and extended warranties, which is the biggest part of their business in every department.

This has nothing directly to do with Apple. It's like the excuse for poor PC sales is being given as the floods in Thailand. That's also a lot of hooey.

Upsell is a term with little meaning. So you sell a very low margin computer, and often GIVE away a cheap printer. Other times, you sell a printer with even lower margins than that low margin computer. So what has the store gained?

It's true that Apple's products have lower store margins. But, they always sell for list, or very close to it. A $499 iPad sells for $499, or at best, $479. But a competing tablet that lists for $499, few of that them that exist, will usually sell for $429, or $399, or even for as little as $379. And that's when it's not being discounted under manufacturers cost for the purpose of getting them out of inventory altogether. If they don't heavily discount, then the product fails to sell at all.

So we can look to the Android Asus Transformer Prime. This is the most highly touted Android tablet out there, and with all the gushing praise we read on the web, one would think Asus has a winner on their hands. But no, they don't.

So there's that pesky lawsuit that Hasbro brought against them for the name. Forget that. What's important about the suit is that in these cases, in order to show damage, the companies must show sales, and possible sales.

So let's say that BB is not happy about Apple"s margins, which makes no sense, but let's pretend. They look at this wonder tablet of Asus, and think that they'll sell a lot of them with those higher margins. But wait! The lawsuit has shown just how popular that high margin product is. So, in order to insure that as many people as possible would get a Prime, like Apple, Asus held a preorder period. So how did it do? According to the lawsuit's revealing of the numbers, they presold a whole 2,000 tablets. Yup, not a typo, that's 2,000. And in addition, for the quarter, their WORLDWIDE shipments to retailers was a whole 80,000. Again, not a typo. That's 80,000.

So BB did get these. They got about an average of 2 per store. WOW! They're sure gonna make a lot of money on that! They have so few, that they should sell out. That will then be worthy of a headline: Best Buy Sells Out of Popular New Android Tablet. Supply can't meet demand.

Better they stick with Apple.

Add me to the "REALLY?!" crowd on this story. Is it a slow news day and AI had to come up with something to get clicks? (Apparently they succeeded since I'm writing this.)

As for margins, didn't Costco recently drop Apple products because Apple wouldn't let them sell for less than Apple's set price?

Not going to comment on the rest of the article since it's pure click-bait.

- Jasen.

The bolded statement is absolutely wrong.

There are quite a few sites that allow comparison shopping for Apple products among major retailers. For Macs, there are always dealers selling for less than retail. Here's one example:
http://macreviewzone.com/prices/imac.php

Even iDevices are not always sold at list price. For example, Walmart sells the iPhone for below list.

Now I'm confused. Is one of us dreaming that you said Samsung, HP, et al didn't offer BB better margins than Apple?

Many consumer electronics products carry "relatively low margins" for retailers.
iPad is just one of those products.

Best Buy's problem is that people are buying iPads *instead* of PCs.

Because, as usual, any headline with Apple, or one of its products in it will draw readers like flies. Unfortunately, AI isn't immune from this because headline news aggregators will pull the article into their own sites, and in order to get hits, a headline has to stand out. I'm not thrilled by it either, but that's the way it works. As for this site and it's readers, the editor, or whomever wrote or approved of the headline and the article knows the readers won't take it literally.

It's a sad commentary on the depths of reporting the web has dropped to.

You're making a mistake in comparing a manufacturer like Apple, with a mass market big box retailer. They have nothing in common. As far as I know, BB has no real products of their own.

If you make that mistake, then you're missing out on what is happening to retail everywhere.


That's true if your costs to stay in business are high, as they are in retail brick and mortar businesses. Amazon survives on a 3.37% margin, because their costs are lower, and Walmart does the same on a 3.67% margin because they can sell the volume, and the way their stores are organized, and their size allows it.


Ever hear of spiffs? That's one reason why. The other reason is that most employees are no different from any other semi tech person, they use PC's, and have a dislike for Apple. PC makers have very low margins of their own, and computers sold in these stores also have very low margins.

What you are misunderstanding is that while a company may offer BB a supposed margin of 40%, where Apple offers 20%, those products are usually discounted by 30% or more, whereas Apple's aren't. This shows the true margin, which is very low.


You can't compare BB to Apple, as they are in very different businesses. Samsung is a much more comparable company, and even there, there are too many differences. Apple is somewhat unique, and it makes comparing any other company to it very difficult, and usually wrong.

I agree. Best Buy is to blame for their woes. Any causation from iPad sales is nonexistent at best.

I just don't get it. Where I live Best Buy is always busy. Like Borders Book Store in my area was always busy. What is the matter with these people?

As I explained elsewhere, that margin is illusory. My company was partly in retail. I can tell you that the supposed margins you get are not what you can sell most products with. So whereas most electronics comes with a 40% margin, after the usual 25-35% discount, the margin is minimal. How much does BB make on the average sale? Very little. And with most of their products costing $25 of less, the actual profit isn't there. Have a sales person spend five minutes with you, and the item is now sold at a loss, when the paperwork is included. How much profit is made on that $199 surround sound receiver, discounted to $129? About $6!

Yep, it's AI putting it Apple spin on everything.*

They should rename the site AppleSpinsider!

*Not that I mind, really.

Pretty sure it has more to do with pushy sales people that don't know the first thing about what they are trying to sell.

No joke, went in looking for a charger for a camera and the little girl told me the one I had in my hand is "the one you need for that camera". I said I wasn't sure and picked another one up and "oh, that is DEFINITELY the one you need for that camera". I ended up getting the first one because I knew what number I needed and left.


I only go to Best Buy when I need something right now and can't wait three days for amazon. I know what I need 99% of the time and will ask if I need help the other 1%.

As usual, you aren't actually reading what I wrote, just picking out a couple of click bait statements out of context.

I'm trying to respond to you, and others responsibly, but you don't seem to like to reply responsibly.

It seems that large consumer electronics retail chains have only a few good decades of life in them.
Eventually they fall victim to over-expansion, trendier or lower-cost competition, mismanagement, or some combination of all of that.

- Pacific Stereo: 1970 - 1986 (bankruptcy)

- Good Guys: 1973 - 2006 (acquired by CompUSA)

- Circuit City: 1981 - 2008 (bankruptcy)

- CompUSA: 1984 - present (only a few stores remain open after bankruptcy and ownership change)

- Best Buy: 1983 - present (closed all stores in the UK and the People's Republic of China)

Maybe, after a number of decades, consumers just get tired of old retail stores.
They buy modern gear in more modern stores. Not where their mom used to take them.

There's the old joke about a guy being pulled into bankruptcy court for losing money on his business because he sells everything below cost. As he's going, he yells: I can make it work. I just have to sell more!

There are a lot of reasons for it.

One major reason is that buying habits change, and often businesses don't change quickly enough to catch the new wave.

The other major reason it that when the economy is doing well, even most poorly run businesses will do well. Once the economy turns, poor businesses never recover once the economy gets better. A large company can take some time to fail, so their lifetimes can extend beyond the time where they're doing well.

Of course I am Mel.

I saw your spin after your original post was questioned. In essence you really didn't mean to say what you said initially, but instead meant that other products could get discounted unlike Apple products, so their actual margin is really the same as Apple's. . . depending on IF the retailer chose to discount the product heavily. Did I get that right?

+1 FTW baby! Well put.
I was in my local Best Buy the other day(hate that damn place) and the people were all about iPads and iPhones. Those big a$$ Samsung galaxy phones on display didn't even have roaches hanging around it. Sony's tablet? Hell no!!!!!! POS anyway.
But I am very skeptical about this correlation between Apple's success through Best Buy's retail chain and BBs decision to shutter 50 stores. I call the link complete BS!

A gas station owner can tell you that they only make pennies on a gallon of gas. The bulk of their revenue is from food and coffee.

The "strain" that ipads are having on Best Buy probably refers to the reduced sales of their other higher margin electronic products. They just need to upsell their ipad customers on accessories and whatever else they can push. The ipads bring in the visitors, just as the as gas brings in customers to the gas station, but their revenues depend on those customers buying other stuff.

Point taken. jr, I should have put more thought into what I was writing. I should have excluded online retailers from that, which always knock a few dollars off list in attempts to differentiate themselves from each other, but it's always the exact same amount, it never changes as in "on sale". I was thinking more of the statement that BB should have dropped their price on Apple products to compete with other brick and mortar shoppers, which I don't believe they can below an agreement with Apple. I believe they are not free to offer it for whatever they want. This was definitely the case for CC and CompUSA. There has never been a reason to comparison shop at local stores for Apple computers. There has always been an opportunity for catching a deal on Dells, Samsungs, HPs, etc that is much more meaningful than the few dollars difference between MacMall or full list locally. That was my point and it does relate to the control Apple maintains on its retail channels, even if I flubbed the presentation : )

As far as iPhones at places like Walmart, that's true, but phones weren't on my mind here, given that Apple obviously does allow them to be used by carriers as they wish, especially when tied to data contracts. Phones are a kind of category of their own. But aside from phones BB's prices, from what I can see on Macbook Pros and iPods are all the same as Amazon's give or take a few cents. I was really just responding to "If the iPad had more margin Best Buy would drop the price" which misses the point. With something as hot as the iPad that is an $700 for most sales, shaving a few more dollars off the price isn't going to sell you any more because they're already flying off the shelves (if at other stores and not BB). There's nothing BB could do to sell more iPads than they do that has to do with prices. They'd have to completely revamp the country's perception of them, starting with throwing out the model of running the business based on profits from service contracts, which they'll never do.

I don't think we're tired of retail stores. I like them. But when I see my wife, mother, mother-in-law, many people in my orbit, just going to Amazon for everything except for groceries with no negative feeling about it whatsoever regardless of how I feel it hurts the whole marketplace, I know the answer.

Don't forget Crazy Eddie's!!


The fact is that you were wrong when you said that no one could sell Apple products for below list. I gave just a few examples.

Now you're trying to rearrange your statements, but you're still wrong. I've seen Apple products fore below list in brick and mortar stores, too. I've also seen sales. Just one example - Best Buy had a sale on the iPad 2 just before the iPad 3 came out.

You were wrong and your attempt to correct your error was equally wrong.

I've been understanding that Apple has to approve "sale prices" or discount bundles at the box stores that serve as authorized Apple resellers, and that Apple in general controls the pricing. Is that incorrect as you're implying?

If Best Buy and other box stores like Walmart are the master's of their domain and can sell Apple products for whatever price they wish, I'm surprised I see them priced so consistently with each other. I would think one of them would run a loss leader sale on a new iPad for example, to generate traffic for other products. Twenty iPads available at cost would pull a lot of activity into a Best Buy on a Sunday morning without giving up much profit.

jr, Apple has an M.A.P. that an Apple authorized reseller must agree to in their reseller contact. You're talking about selling less than list, which was not my point. I'm talking about selling less than the MAP (which can't be done), which gives very little leeway regardless of margin (and regardless of how poorly I put my original post).

That's your third version. And it's not correct, either.

In any event, you started with "It has never been within any store's ability to sell any Apple widget for $20 less than a competitor." and have revised it twice. Once you figure out what you're trying to say, please let us know and I'll tell you if your fourth version is wrong, too. I have no interest in debunking 100 versions of the same incorrect story.

Heck, just answer mine (post 72) and you don't have to be rude to anyone else. Your answer to that should be enough to clear things up.

They are both retailers who maintain brick and mortar stores and have an online presence. That's the common factor between the two. Just because Apple designs and controls the building of what they sell and is wildly successful at marketing it and BB is not ..... takes nothing from the fact that they are indeed in the same marketplace, competing for the same consumer $$$ and sometimes, even on the same products.

Again with the hyperbole .... retail everywhere ? Really ? In that case I guess I'd better stock up on ...... everything.

There, I fixed it for you.

And who decides to discount the 40% margin on those products. What you are seemingly not understanding is that every retailer makes it's own mind up about what kind of company they are going to be and then develop a philosophy/plan to make it happen. The whole tone of my post was to point out the two different philosophies of retail marketing.
I guess that I didn't make that clear enough for you .... or maybe you were in too much of a rush to tell me how, in your opinion at least, I was wrong .... multiple times.

jr I'm ceding that that statement is wrong and that you have set the record straight on Apple's list price. Are you saying that there is no Minimum Advertised Price agreement in reseller's contracts, because I've been told, by a former reseller, that it's an extremely stifling agreement, and more so than the other brands he carried. But if you have info about it I would be interested.

I don't know and I don't care.

Your original post said that a company could not sell an iDevice for $20 less than the competition - and that was clearly incorrect. Best Buy sold iPads for $50 off just before the iPad 3 came out.

In fact resellers can sell at whatever price they want, otherwise it would be price fixing and illegal. However many brand-name manufacturers restrict advertising of lower prices. In such cases a lower price can still be offered during the shopping process.

Reading comprehension Jragosta. . .
I didn't say anything of the kind.