Retailer Best Buy (NYSE:BBY), which reports earnings on Wednesday, is under intense pressure to maintain market share while competing with the likes of Wal-Mart (NYSE:WMT) in consumer electronics and facing down Home Depot (NYSE:HD) and Lowe's (NYSE:LOW) in home appliances. I will focus on home appliances today.
Best Buy's share of the appliance market has shrunk considerably as home improvement retailers have moved full force into this arena. With an estimated 38% of the appliance market, Sears (NYSE:S) is by far the market leader, while Lowe's and Home Depot are Nos. 2 and 3, respectively. The increased competition has cut into Best Buy's sales, with appliances accounting for only 6% of sales last year, down from 9% just a few years ago. (Competitor Circuit City (NYSE:CC) exited the appliance business altogether back in 2000.)
CEO Brad Anderson's response has been quite underwhelming. He told the Reuters Consumer Products and Retail Summit participants that Best Buy would remain in the appliance business, while investments in customer service were being made to improve the in-store experience. The company is excited about innovations from companies like Samsung Electronics, and Anderson believes that better customer service will offer Best Buy an advantage over the competition. Fair enough.
While same-store appliance sales grew slightly last year, Anderson admits the company has done a rather poor job of marketing the appliance business. "Our presentation hasn't been very good, our delivery has been barely competitive, and we just haven't had the kind of strong, compelling offer we've had in other parts of the business," Anderson says. "We think we can solve that, but we haven't made the decision yet to put the resources to solving that."
Alas, these are not very comforting words from a CEO. It seems that Best Buy should either invest the resources and execute, or get out of the appliance business. This type of half-commitment from the CEO will inspire zero commitment where it matters -- in the rank and file -- and is the perfect recipe for mediocre performance. Appliance market share is steadily dwindling, and management can't decide what to do? I'm not a Best Buy shareholder, but if I were, I would be asking Mr. Anderson what he's waiting for.
What do you think Best Buy needs to do to turbo-charge its appliance business? Share your opinions with other Fools on our Best Buy discussion board.
Fool contributor Chris Mallon enjoys shopping at Best Buy but doesn't own the stock. He does, however, own shares of Home Depot through his private investment partnership.
