Is Best Buy in Trouble?

Joel Anderson  |

Shares in retailer Best Buy (BBY) plunged 6.95 percent Thursday after the company's revenue fell well short of expectations and the company announced that it would be closing stores.

Best Buy's Business Model Shifting

The cuts made by Best Buy, in many ways, represented an acknowledgement that its big box store strategy that has been so successful over the last two decades was no longer functioning. The company reported a $1.7 billion loss of the fourth quarter ending March 3, representing yet another brick-and-mortar retailer that appears to be in trouble as companies like Amazon (AMZN) and eBay (EBAY) cut into their sales.

"I am not satisfied with the pace or degree of change we have made up to this point," Chief Executive Brian Dunn said in a conference call with analysts, adding, "We are evolving our retail store strategy. We are increasing our points of presence while decreasing our overall square footage."

The company will be closing 50 stores and cutting some 400 corporate jobs in order to shed $800 million in costs.

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Tough Days Ahead for Retail

The difficulty of finding a way forward for brick-and-mortar retailers is considerable, and Best Buy hopes to find a path that will work. Best Buy intends to open 100 new Best Buy Mobile locations, smaller stores more dedicated to the market for smart phones and tablets.

“In order to help make technology work for every one of our customers and transform our business as the consumer electronics industry continues to evolve, we are taking major actions to improve our operating performance,” said Brian J. Dunn. “These changes will also help lower our overall cost structure. We intend to invest some of these cost savings into offering new and improved customer experiences and competitive prices — which will help drive revenue.”

Best Buy is hoping to avoid the sort of fate that befell Circuit City, which liquidated in 2009, or that Barnes & Noble (BKS) appears to be headed for currently. However, the long term trend away from physical retail locations appears to be anything but over.

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