Is Best Buy's Super Bowl Commercial a Lie?

Despite its financial struggles, Best Buy (NYSE: BBY  ) was back with another Super Bowl commercial yesterday.

No Ozzy Osbourne. No Justin Bieber. No laughable obsolescence insurance to promote.

It was an effective 30-second spot, highlighting mobile and mobile app visionaries.

It doesn't even seem like a Best Buy ad until the final few seconds.

"And we created a better way to buy a smartphone," says someone decked out in Best Buy garb with a few blue and yellow associates behind her. "Any phone. Any carrier. And all of their plans with lots of unbiased advice."

The right connection
There's no denying that mobile retailing is the future of consumer electronics. RadioShack (NYSE: RSH  ) stunned investors last week in revealing that traditional, non-mobile consumer electronics fell a sharp 30% during the holiday quarter.

Both RadioShack and Best Buy have been opening smaller stand-alone kiosks devoted entirely to selling wireless handsets and accessories.

The ability of traditional retailers to offer various platforms across different carriers is a worthy selling point, and Best Buy sweetening the pot with promotional offers makes this even better. As part of yesterday's Super Bowl spot, Best Buy is offering a $50 gift card this week to folks who reserve the right to activate their phones later this year through the retailer. The deal is only good for AT&T (NYSE: T  ) , Verizon Wireless, Sprint (NYSE: S  ) , and T-Mobile.

I'm very cynical when it comes to Best Buy, but this is a good deal. Best Buy's pricing is the same as you would find if you walked into your local AT&T, Verizon Wireless, Sprint Nextel, or T-Mobile store. Why not cash in on a $50 gift card if you truly are upgrading your phone this year?

However, the last two words of the ads don't pass my sniff test. "Unbiased advice"?

Truth in advertising
How would you define "unbiased advice" in context of a retail transaction? Make a purchase at Best Buy -- in person -- and you'll be hounded with offers for extended warranties, Geek Squad tech support, and buyback protection programs. They all cost money. They're all high-margin add-ons that employees are encouraged to attach to customer purchases.

What if things get worse?

RadioShack was bellyaching last week about cascading margins, blaming the popularity of select smartphones during the holiday quarter for the shortfall. Without calling Apple (Nasdaq: AAPL  ) out by name, the implication is that the huge sequential boost in iPhones -- and Apple sold more than 37 million smartphones during the final three months of last year -- hurts retailer margins.

If this is the case at Best Buy as well, are we seriously going to believe that Best Buy will continue to encourage iPhone sales if there are greater profits per sale to be made by pitching Android, Windows Phone, or potentially even BlackBerry devices?

I'm merely speculating on that final point, but the fact that Best Buy employees are encouraged to push its high-margin protection plans really finds me questioning how "unbiased" this "advice" really is.

Just because you offer greater selection doesn't mean that a buyer will have greater choices. If Best Buy continues to face thinning margins on products, is it really going to ignore the opportunity to push add-on services and accessories that may not be necessary? There's a reason that store-level sales have been weak at your neighborhood Best Buy store for a little more than a year.

Do you really trust the advice at Best Buy? A lot of people don't, and comparing the chain to some true innovators in mobile rings as hollow as the "unbiased advice" promise.

I entered a bearish CAPScall on Best Buy in Motley Fool CAPS two months ago. The call is beating the market so far -- because Best Buy is not. If you want to play nice with the trends that will pay off in the future, forget Best Buy and begin reading up on the stocks that smart investors are buying. It's a free report, but it will only be available for a limited time so check it out now.

Longtime Fool contributor Rick Munarriz calls them as he sees them. He does not own shares in any of the stocks in this story. Rick is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early.

The Motley Fool owns shares of Apple, RadioShack, and Best Buy. Motley Fool newsletter services have recommended buying shares of Apple. Motley Fool newsletter services have recommended writing covered calls in Best Buy. Motley Fool newsletter services have recommended creating a bull call spread position in Apple. 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. The Motley Fool has a disclosure policy.


Read/Post Comments (5) | Recommend This Article (3)

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 February 06, 2012, at 10:57 AM, dwillis77 wrote:

    Motley Fool is getting desperate! It is so obvious that you are short. You try and criticize everything they do. Might wanna go ahead and cover, or you wil regret it.

  • Report this Comment On February 06, 2012, at 11:38 AM, oregonpb wrote:

    The best buy model is dying, most consumers (20/30 yr olds) are sufficiently in the know they won't need best buy telling them what they need. The elderly are turning to their kids or grand kids for help as well. The $50 promo is great and might drive up foot traffic, but selling a loss leader to a educated crowd isn't a winning proposition. I don't see the same crowd turning around and purchasing $20 Blu-Ray's (streaming crowd, one in the same IMO), $2,000 TV's when better deals are elsewhere or overpriced appliances.

    I'm not in best buy because I don't see there current strategy as being effective to increase margins.

  • Report this Comment On February 06, 2012, at 11:52 AM, Jetfly wrote:

    Best Buy advice. Now, there's a real oxymoron! I've shopped there in the past and could never find anyone who knew enough about their products to give good advice. I'll stick to Apple's excellent associates' advice for all my needs. I always trust them.

  • Report this Comment On February 06, 2012, at 12:57 PM, ZackaryJim wrote:

    Rick,

    Your speculation about Best Buy employees pushing higher-margin devices if incorrect. The business tracker that the mobile department uses bases phone activations on notional margin, not gross margin. Best Buy calculates the average margin in a general category (smart phone/dumb phone, level of plan subscribed to) of phone activation then applies that to every activation within that category. The employees have no insight into which phones have a higher profit margin, and are not encouraged to sell one model over another.

    As far as the service plans offered, they're the same as the plans offered by the mobile companies themselves. While they may be high-margin, that doesn't make them a bad value. For about $200 for two years, if I ever smash my iPhone, I get a new one. As many times as I need within the two years. It's the same offer I'd get if I went to a Verizon store. Personally, I'd rather spend that amount then ~$100 in ugly cases to protect my phone.

    Best Buy obviously encourages its employees to be profitable. However, the employees themselves don't stand to directly benefit from doing so. As a Best Buy employee, I enjoy finding the most fitting solutions for customers, not just trying to get them to spend as much as possible.

  • Report this Comment On February 06, 2012, at 1:57 PM, mulderaj wrote:

    "Hi, Consumerist? My Name is Rick Munarriz and I would LOVE to join you in writing articles about how Best buy is terrible. I too can write a condescending article based entirely on what I believe rather than any knowledge. I can also create a story out of thin air and accuse Best Buy of outlandish things just to get a few extra hits on my web page."

    This is my opinion but I know nothing about you Rick or your background. I know nothing about your qualifications to write an article. I also don't know how often you actually shop at a Best Buy and what your last experiences were at Best Buy. But I can tell you that this entire article is not reporting, analyzing a stock, or even objectively talking about Best Buy. This is an article meant to be inflammatory and meant to drive traffic to your website.

    Granted, the commercial doesn't tell you why they believe they developed a better way to buy phones so it is up to the consumer to decide for themselves what that means...a real, and informative, article would have actually asked Best Buy employees why they believe they have a better way to buy phones. Then, after doing research(notice the research comes before the article writing), you could write about how Best Buy makes claims x, y, and z. Compare those x, y, and z claims to Best buy's competition, and point out pros and cons. Then let the reader decide if Best Buy's claim is true.

    instead, we get an article that looks more like a portfolio piece for a job application at consumerist.

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