Best Buy Co. Inc. (NYSE: BBY) sells Frigidaire Dish Washers for $479.99, which is $120 below the regular price. The consumer electronics retailer also sells refrigerators, driers, microwaves and ovens, and all of them at steep discounts, up to 20%. Smartphones and personal computers (PCs) used to be enough for Best Buy. Apparently, that period passed.
Amazon.com Inc. (NASDAQ: AMZN), Best Buy’s mortal enemy, sells household appliances as well, and it even sells used ones to people who really want to save money. However, Best Buy has mostly gone into competition with Sears and Kmart, which sell appliances among their most highly promoted products. The Kmart and Sears parent company, Sears Holdings Corp. (NASDAQ: SHLD), even controls Kenmore, a company that has made appliances for decades.
Why did Best Buy get into the appliances sales business? Likely because it cannot sell enough of its traditional product mix to maintain its revenue, as well as to justify its current expense structure and business model. In its most recently reported quarter, Best Buy posted flat revenue at $40.4 billion. Non-GAAP diluted EPS from continuing operations hit $2.60, compared to $2.07 in the previous fiscal year. Appliance sales were only 6% of revenue, but the category’s growth was among the best growth across the items Best Buy sells. Best Buy management has to believe that diversification has been a winner.
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Is the appliance business a winner for Best Buy? If it has improved success in this product segment, then Sears, Kmart and other retailers that have appliance sales at the core of their revenues will make it their goal to get those sales back from Best Buy, whether through advertising, discounts or both. And Amazon never misses an opportunity to strip sales from any rival, as long as it believes it can add revenue. The problem Amazon creates as a competitor is that it has a history of offering such sharp sales in some categories just to keep consumers on its website. Even if some sales lose money, Amazon prizes loyalty as a means to keep the foundation of its growth.
Best Buy’s move into appliances may draw some new customers, but the move is also a sign of its struggle to maintain what was once its core business.
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