Is Best Buy This Desperate?

Best Buy (NYSE: BBY  ) is diving headfirst into the consumer electronics repurchase market -- but it may have forgotten to fill the pool with water.

Boy Genius Report is unearthing documents of a new service that Best Buy is presumably launching tomorrow, where it will begin to repurchase smartphones, laptops, tablets, and TVs.

If this were it -- and Best Buy were just setting up space within its massive stores to offer up a glorified pawnshop or the means for suppliers to get back parts or merchandise worth refurbishing -- it would simply be a puzzling move. Yes, Best Buy has followed GameStop (NYSE: GME  ) into video game trade-ins, but does it really want to be portrayed as the place where folks lug in year-old handsets and flat screens?

Unfortunately, this isn't just about the resale opportunities. Best Buy won't buy back your wares unless you paid the chain a premium for that right first.

Similar to its Geek Squad Black Tie Protection, where buyers pay for a set number of years of support and maintenance, the new Buy Back program is a premium service that Best Buy is pitching as protection against obsolescence on new purchases.

It may have been neat to know that Best Buy would repurchase any of the covered products during the first six months of ownership, at 50% of what customers shelled out, but folks have to pay a small premium for that coverage. For example, with a mobile phone, the scale slides quickly after the first six months -- all the way down to 20% during the last half of the second year -- so it's really more a confirmation of obsolescence than protection.

There may be a market here for serial early adopters, particularly for smartphones. Apple (Nasdaq: AAPL  ) refreshes its products annually, and buyers of Android phones find a slicker model being rolled out every few weeks. However, there are already plenty of outlets -- from Craigslist to eBay (Nasdaq: EBAY  ) -- that serve as clearinghouses for secondhand goods in working condition. If consumers don't want the hassle of haggling or waiting for interested buyers, RadioShack (NYSE: RSH  ) accepts trade-ins. Wal-Mart's (NYSE: WMT  ) website offers a trade-in program through Gazelle for Wal-Mart gift cards.

We'll see tomorrow if Best Buy is really doing this, but it seems to be a flimsy solution to a problem that others are tackling more effectively without the upfront tollbooths.

It's easy to see why Best Buy is hungry for something new, as the superstore chain is coming off a horrendous preholiday quarter. I'm sure the margins on these plans opened up the eyes in the boardroom, but it just won't fly.

Online sales continue to eat at Best Buy's business. The failure of Circuit City is appearing to be more a case of foreshadowing than an opportunity. Best Buy shareholders appear to be the ones needing protection from obsolescence.

It stings, I know -- but it's true.

Would a premium buyback service work at Best Buy? Share your thoughts in the comment box below.

Best Buy and Wal-Mart are Motley Fool Inside Value recommendations. Apple, Best Buy, and eBay are Motley Fool Stock Advisor picks. Wal-Mart is a Motley Fool Global Gains selection. The Fool owns shares of Apple, Best Buy, GameStop, and Wal-Mart. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Longtime Fool contributor Rick Munarriz came out of last year's liquidation sale at Circuit City empty-handed. He does not own shares in any of the companies mentioned in this story. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.


Read/Post Comments (6) | Recommend This Article (12)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On January 04, 2011, at 5:15 PM, FoolSolo wrote:

    Best Buy's best days have long passed. Yes, they out-lived Circuit City, but it's a hollow victory because Circuit City patrons didn't run over to Best Buy, they went to Amazon, Walmart, Target and the e-tailers. This little ploy is just a desperate clutch at straws. I see nothing by down side for Best Buy unless they dramatically reinvent themselves in some way or find a different niche to operate in.

    Frankly, between Circuit City and Best Buy I always preferred CC, and often would pay a little more to avoid Best Buy. CC's customer service was always superior, and their staff was usually more informed about what they were selling. But the online revolution, and the one-stop big box stores made them both obsolete.

  • Report this Comment On January 04, 2011, at 7:51 PM, scottmcd5 wrote:

    Best Buy has operated a trade-in program for quite awhile.

    http://www.bestbuytradein.com/bb/

  • Report this Comment On January 04, 2011, at 10:19 PM, Popnfresh100 wrote:

    I think a buyback program would be a good idea, but they are failing to recognize the trend that is doing them in- combined manufacturer-retailing.

    Think about it:

    Apple has its own stores. Sony is opening them, too.

    You can find Verizon and cricket outlets at just about every stripmall.

    People buy Kindle's directly from Amazon and nooks directly from Barnes and Noble.

    Dell.com is well-known as an e-tailer.

    Best Buy needs to start making their own products.

  • Report this Comment On January 04, 2011, at 11:06 PM, jmbring wrote:

    spot on, nice article.

  • Report this Comment On January 05, 2011, at 11:39 AM, magic2011 wrote:

    Although e-tailers may have eaten into Best Buy's sales, for me and others who shop around, it's a no-brainer. BB's prices are almost always higher than anyone else. This is especially true with their prices on DVDs and Blu-rays. Other stores will sell a movie for $19 and BB sells it for $29. Many other cases of 20%-60% higher. Printers and computers are almost always higher. Office Depot has better prices. I'm surprised they (BB) are still in business.

    I, too, almost always avoided BB and shopped at CC. For 2009 Christmas, my son gave me a BB gift card for $100. It's still in my wallet. I find things cheaper at Target, WalMart and other brick and morter stores. Why pay more at BB?

    BB needs to rethink its pricing strategy for everyday sales, not just charging extra fees like the airlines do to make up the difference.

    Best Buy is not the best buy.

  • Report this Comment On January 18, 2011, at 11:29 AM, williamjacobs wrote:

    Best Buy's 3 year warranty have saved me a small fortune on the cruddy goods you buy today.

    Hoover, canon, hamilton beach... we're not talking generics here. It's a total crapshoot and for a few bucks, Best Buy takes on the problem of poor craftsmanship for me.

    Shipping alone on these duds not to mention avoiding phone hassle makes me very warm towards Best Buy.

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