Alamy Best Buy (BBY) is getting unduly cocky in its latest holiday ad.
Comic actor Will Arnett reads a revised version of “‘Twas the Night Before Christmas,” featuring a father who knocks off his holiday shopping list with a single trip to the consumer electronics superstore. Arnett goes on to call Best Buy “the great showroom floor.” The ad closes with “Your Ultimate Holiday Showroom” as graphic text.
Best Buy is clearly trying to take back the word “showroom” at a time when “showrooming” has come to mean consumers kicking the tires of products at local retailers only to order them for less online.
That’s a real problem for bricks-and-mortar businesses, but nonetheless, Best Buy is making its actual showroom the centerpiece of this holiday season’s marketing campaign.
That’s gutsy. It’s also an ill-advised strategy.
The Fatal Flaw in Best Buy’s Turnaround Story
Best Buy has certainly won back investors. The stock has nearly quadrupled since bottoming out last December. There’s also probably nobody as confident of Best Buy CEO Hubert Joly.
“A year ago people said that showrooming would kill Best Buy” he told The Wall Street Journal in an interview this week. “I think that Best Buy has killed showrooming.”
That’s a brazen claim; Best Buy’s fundamentals don’t match its stock price. Same-store sales — the key metric in the retail industry that measures how much the average established store is raking in relative to a year earlier — have been consistently negative for the past three years.
The store-level situation is also actually worse than even the reported numbers suggest. Best Buy is one of the growing number of retailers that include online sales in their same-store sales calculations. Dividing the growing number of BestBuy.com sales into the chain’s store count artificially inflates the amount of merchandise that physical stores claim to be selling.
No offense, Best Buy, but until you legitimately grow sales at the individual store level, showboating about your showroom is premature.
You Can’t Spell Holiday without H-O-L-D
Between the buoyant stock price, its CEO’s bravado, and the perpetually smug Arnett as a pitchman, one might expect Best Buy was headed for a blowout holiday shopping season. Well, analysts don’t seem to think so.
Analysts see Best Buy’s sales sliding nearly 11 percent during the company’s fiscal fourth quarter. Amazon.com (AMZN) on the other hand — the company that supposedly Best Buy is winning the showrooming battle against — is expected to soar 22 percent during retail’s hottest quarter.
Wall Street does see Best Buy’s profitability continuing to improve, but that’s a testament to Joly’s skill at cutting costs and improving profit margins. He has certainly done a commendable job on that front, and that’s ultimately the reason why the stock has been such a big winner in 2013.
However, when it comes to the store’s actual popularity, Best Buy is nowhere close to being the retailer that it used to be.
The Long Way Down
Best Buy has had more than a few bad breaks along the way. The economic slowdown didn’t help. The widespread decision among consumers’ to take a pass on high-priced 3-D TVs took a bite out of the chain’s big-ticket sales. However, the digital revolution has stung Best Buy in more ways than merely the showrooming trend.
It’s true that more and more customers are armed with smartphones these days. Why buy a stereo receiver or a computer monitor at Best Buy when a few seconds on a smartphone can locate the same product being sold for a lot less online? Best Buy really can’t compete on price with Amazon and other Web-based retailers that don’t have to pay up for a retail presence.
Worse, the smartphone and tablet revolutions hurt Best Buy by pulling the rug out from under its sales of vast quantities of physical media and software — CDs, DVDs, and video games — the products that Best Buy once used to lure customers in more often. You may only need a new dishwasher once a decade, but there are new music, movie, and game releases every week. Now that media has gone digital and downloadable, Best Buy has to find new ways to encourage shoppers to trek out to its stores. So far, it hasn’t done that.
If we go by the same-store sales figures and analyst holiday forecasts, Best Buy’s brash advertising strategy amounts to little more than whistling past the graveyard — and there’s a plot waiting for it.
Longtime Motley Fool contributor Rick Munarriz has no position in any stocks mentioned. The Motley Fool recommends Amazon.com. The Motley Fool owns shares of Amazon.com. Try any of our newsletter services free for 30 days.