Keeping Tabs on Best Buy's Demise

So this is Best Buy's (NYSE: BBY  ) plan to save the company: Come to the party late and then try to eat the scraps of Apple (Nasdaq: AAPL  ) and Samsung?

The electronics superstore has been hinting for weeks on Twitter that it would be soon unveiling a mystery product. Last week it revealed on Facebook  (Nasdaq: FB  ) it was going to be an Android-based tablet computer that would hit store shelves on Nov. 11, just in time for the Christmas shopping season . Yesterday, Reuters said Best Buy will sell the Insignia Flex for somewhere between $239 and $259, a price that would undercut both the low-end iPad and the Galaxy Tab 2, which start at $499 and $399, respectively . Apparently in its fight for survival, Best Buy has decided to lay down its life instead.

Mechanized warfare
In battle it's said you can't fight a war on two fronts. The electronics retailer already faces a stronger, more nimble enemy on its home front, where Amazon.com (Nasdaq: AMZN  ) is waging a war of attrition by stealing customers for TVs, stereos, and gadgets. Best Buy's response has been to offer limited-time price-matching on Internet sales, a tactic that may let it live to fight another day.

But what's been left for the bricks-and-mortar retailer is a fairly successful, but ultimately low-margin, mobile-phone business. While there was an overall 3.2% decline in same-store sales last quarter at the retailer, the mobile segment grew comps at a torrid 35% clip year over year. Yet along with computers and TVs, mobile was a prime reason for the 52% drop in adjusted operating income .

Now it wants to open up a second front in a theater that's already crowded with combatants. While Apple and Samsung dominate the tablet market, Amazon, Microsoft (Nasdaq: MSFT  ) , and Google (Nasdaq: GOOG  ) all have their own tablets vying for attention, not to mention all the lesser players with their me-too offerings. Rather than a coordinated response, it looks like the Battle of Five Armies from The Hobbit.

Appealing to the least common denominator
Although its low price will surely attract a few buyers, Best Buy can really only hope to pick off a few outlier consumers rather than make this a core business group. For a struggling retailer to start getting into the hardware end of things suggests it's flailing around for ideas, throwing anything at the hordes staring it down and hoping it hits home.

And if initial reactions to the Insignia Flex's specs are any indication, the shot will miss wide of the mark.

Best Buy says the tab will feature a dual-core 1 GHz processor running Google's Android 4.0 Ice Cream Sandwich, a 9.7-inch screen, and 10 hours of battery life. Comments on the Insignia Products Facebook page basically trashed the specs as outdated and needing a price below $200 to make it interesting. While some defended it as appealing to those without a lot of money who don't care for the latest specs, it still sounds like it will be critically panned when introduced.

Playing Taps
Last week I thought Best Buy's price-matching scheme gave it a slightly longer lease on life as it tries to blunt the impact of "showrooming" occurring at its stores. I'm not sure this tablet development at the price point it's chosen extends it any further. In fact, it may serve to dull its own chances for survival as it diverts resources in what becomes a quixotic campaign for relevance.

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Rich Duprey owns shares of Apple. The Motley Fool owns shares of Apple, Amazon.com, Best Buy, Facebook, Google, and Microsoft and has options on Facebook. Motley Fool newsletter services recommend Amazon.com, Apple, Facebook, and Google. Try any of our Foolish newsletter services free for 30 days. We Fools don't 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.


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  • Report this Comment On October 18, 2012, at 9:11 AM, reww1234 wrote:

    Best Buy is here to stay, just the "fool" always likes to play the fool. Strong vendor relationships, strong customer base, just because Best Buy is not growing at the pace Wall Street seems fit (or even a small decline) Best Buy will always be here, you fools.

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