Best Buy's Chance of Survival Just Got Worse: What You Need to Know

Hasn't Best Buy (NYSE: BBY  ) learned anything from fellow bricks-and-mortar superstar-turned-disaster Barnes & Noble (NYSE: BKS  ) ? Not unlike the struggling bookstore chain, Best Buy now plans to try its luck in the tablet space. That's right. The world's largest consumer electronics retailer is said to be releasing an Android-based tablet as soon as Nov. 11. I have just one question, Best Buy: Who's going to buy this tablet?

The "Hail Mary" Flex
With its rumored price point between $239 and $259, the device will be more expensive than Amazon's (Nasdaq: AMZN  ) Kindle Fire yet more affordable than Apple's (Nasdaq: AAPL  ) standard iPad. Though let's not forget that Apple is due to release its cheaper iPad Mini at an event scheduled for the end of the month .

Now that's just bad timing. Or perhaps that will be Best Buy's excuse when its new device fails to make a splash in the already crowded pool of tablets. If Apple offers its new iPad Mini in the vicinity of $259, Best Buy's Insignia Flex will be dead on arrival. Not to mention, both Amazon and Apple have something Best Buy does not: brand loyalty. In fact, the only thing Best Buy is known for these days are CEO scandals, store closings, and layoffs.

Here's what we know. The Insignia Flex, as it's being called, runs on Google's (Nasdaq: GOOG  ) Android software and sports a dual-core 1GHz processor, with a 9.7-inch screen, video camera, and 10-hour battery life, according to reports from Reuters. Not good enough.

If this is Best Buy's way of reinvigorating its business model, think again.

Good-bye, Best Buy
This decision positions Best Buy in another congested market fighting for its life. The consumer electronics chain is up against tech giants such as Amazon, Apple, Microsoft (Nasdaq: MSFT  ) , and Google -- all of which have much larger ad budgets for promoting their respective devices ahead of the holidays.

On top of this, both the iPad and the Kindle represent trusted brands. When people buy an iPad, they know exactly what they're getting. Conversely, Best Buy's name has been dragged through the mud lately. It will take time and money to successfully reposition its in-house Insignia brand to compete with the likes of Apple and Amazon.

The unfortunate truth is that Best Buy no longer knows what Best Buy is. You can't expect to gain traction in the tablet market without even the slightest mention of digital content. Yet that's exactly what Best Buy hopes to do. Instead, the big box should have taken a clue from from Barnes & Noble, whose Nook products didn't stand a chance against the rich media ecosystems that accompanied rival devices.

A lack of application support is also what killed Research In Motion's (Nasdaq: RIMM  ) aggressively priced Blackberry Playbook. Perhaps it's telling that, like Best Buy, both Barnes & Noble and Research In Motion entered the tablet space during their darkest hours.

How to play and win
Apple and Amazon's tablets are a hit because they offer platforms with strong ecosystems of apps, developers, and content providers. Not only does Best Buy not have any of these things, but also the company's entrance into the tablet market does nothing to solve the problems it's facing in its core business.

One thorn in Best Buy's tush is the notion of "showrooming," which refers to the growing number of customers who use its stores to comparison-shop. Today, only about 40% of Best Buy shoppers actually leave its stores having made a purchase, according to a recent report by the Wall Street Journal.

This is an issue that Best Buy should have addressed months ago. Instead, it sat idly by while other big box retailers including Target (NYSE: TGT  ) and Wal-Mart (NYSE: WMT  ) have laid out progressive strategies to combat such behavior. It wasn't until recently that Best Buy actually confronted the issue head-on. The company last week announced a new strategy to match prices offered by online competitors like Amazon. 

While this may seem like a promising solution, it's more likely to frustrate and confuse customers. That's because only certain products and specific online vendors qualify for these price-match offers. Moreover, as Gene Munster from Piper Jaffray pointed out, this means customers will often have to show identical SKUs, which could prove to be more of a hassle than anything else.

The end of an era
Best Buy's push into tablets comes off as a desperate attempt to grab hold of anything it can -- in this case, a booming mobile market. If this seems harsh, that's because it's meant to be. Best Buy is getting into the hardware business for the wrong reasons. It doesn't need a copycat product...What it needs is a fresh game plan.

Investors would be wise to stay away from this stock and instead focus on companies that continue to innovate. Think Apple.

With the much-anticipated iPad Mini event next week, Apple investors have a lot to look forward to both over the near term and further down the road. The stakes are high and the opportunity is huge, so to help investors understand where Apple is headed, we've released an exclusive report. By picking up a copy of our premium research report on Apple, you'll learn everything you need to know about the iPhone 5 launch, as well as the company's future prospects. You'll also receive ongoing guidance for a year as key news hits. Claim your copy today by clicking here now.

Fool contributor Tamara Rutter owns shares of Apple and Amazon.com. Follow her on Twitter, where she uses the handle @TamaraRutter, for more Foolish insights and investing advice. The Motley Fool owns shares of Apple, Amazon.com, Best Buy, Google, and Microsoft. Motley Fool newsletter services recommend Amazon.com, Apple, and Google. 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.


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  • Report this Comment On October 19, 2012, at 11:24 AM, Strayjax wrote:

    This article so full of ignorance it is bothersome that you would even comment on the issue.

    The Insignia Flex is an android tablet, which gives it about the largest selection of apps and 'content' that you are going to find. Best Buy doesn't need to focus on content because that comes from the Android Marketplace (Google Play Store). It will instantly have more content than the Fire because the content on the Fire is merely a handful of applications that Amazon decided to allow on their tablet from the Android Marketplace.

    Having this tablet on the shelf is no different than offering their own televisions - it has similar specs and the same content as the direct competition at a lower price and I can tell you that a tablet at that size at that price will be reasonably successful for the company: one, because it will be about the first 10" tablet in that price range with its speed, touch screen quality, and app selection. And two because they have their blue shirts in store to direct customers to it who come into the store for the lowest cost, decent quality tablet they can get to use for basic functionality with a big screen, of which there are many.

    Basically if you walk into Best Buy, or any store, you have the Apple iPad, glorified e-readers (like the Kindle Fire and Nook Tablet), and then you have the Android tablets which are all the others (Asus, Samsung, Toshiba, etc.) You seem ignorant to the fact that all the other companies share the same operating system and are like buying a Windows computer where you can pick a model but they are all Windows machines.

    The Flex is unique as it fills a void where there are hardly any tablets with that speed and size at that price point.

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