The world must wait until the first week of the New Year to know if the “record” 2011 Black Friday results mean anything. Once all the holiday shopping has been accounted for, we will know this:
- Was Black Friday really just this week’s sales pulled up a few hours?
- Did Black Friday convince holdouts to buy like mad?
- Did Black Friday prove there is no recession?
- How the f&ck can retailers make a profit when everything is on sale?
Our best (pun?) tell will be Best Buy. There is no real national competitor of similar size and scope (take that, Circuit City!). And, since consumer electronics reportedly made up 50% of the Black Friday basket, then what better indicator of retail holiday fortune?
In case you haven’t been following Best Buy going into this shopping period, here are some things you should know, buried only one layer deep in its financial results.
Best Buy’s topline growth is the result of acquisitions. On a comp-sales basis, here are the past five years in reverse chronological order: minus 1.8%, 0.6%, minus 1.3%, 2.9%, 5.0%. If the economy wasn’t a factor for this past Black Friday, then it shouldn’t have been for the past three years either, no?
While you’re considering that, think about this also – the emergence of indirect competitors of every shape and size. Local brands like hhgregg, mass merchandisers like Walmart, online retailers like Amazon, and direct-to-consumer plays like Apple. Multiply by a million, and what do you get?
A company that continues to flatten itself with more and more acquisitions. Best Buy is even expanding into kitchens, for God’s sake (Sears, anyone?). In addition, a whole small business arm is growing with acquisitions of “managed servicers” like mindSHIFT (think of an adult Geek Squad).
Over five years, more than a 50% increase in number of stores. Yet only a 33% increase in square footage. Comp-store sales the past two quarters have been atrocious. The real kicker? Operating income as a percent of revenues – formally stuck at 4%, is now under 3%.
No shock then that Best Buy’s stock price, which had recovered nicely from the Lehman days, collapsed last holiday season, and is now around 50% below the year-ago level.
This is not a marketing communications story, nor a “branding” story. (And oh the irony that Best Buy has long been heralded as one of the best in social media marketing.) This is one of those big “P” stories – “Place” and “Product.” Best Buy is spread way too thin in both for focused growth in sales and operating profit.
Depending on what Best Buy management does after taking in the sobering holiday-season-2011 results come next January 7th or so, this will end up five years from now being the story of an ocean liner that was slowly turned in a better direction…