Could Best Buy suffer the same fate as Circuit City?

— 3:02 PM on March 7, 2011

Rather than a lucky break for Best Buy, could Circuit City's bankruptcy have been an omen? That's the analysis of a Wall Street Journal piece, which says the worst times "are likely to come" for Best Buy—unless some type of new technology pulls consumers off e-tail sites like Amazon and back into brick-and-mortar stores.

The Journal points out that, even with Circuit City stores shuttered, Best Buy is losing market share in the "key television and computing categories." Its stock has fallen a good 19% compared to a year ago. Over the same time period, Amazon's shares have gone up 31%. Amazon's revenue from electronics and non-media products reportedly increased by 66% last year, too, with its slice of LCD TV sales nearly tripling.

The WSJ story quotes an interesting point brought up by ISI Group analyst Greg Melich: folks are using Best Buy as Amazon's showroom, getting a first-hand look at products before ordering online to take advantage of Amazon's lower prices. Best Buy could try to fight back by reducing its margins and slashing prices, but that would mean getting rid of sales staff... and becoming more like the competition, which doesn't provide the same customer service.

I have to admit I've been guilty of visiting brick-and-mortar stores only to check out products before ordering them online. Every time, I have to either dodge or politely turn down sales reps trying to provide assistance. I'm not sure those sales reps provide a valuable service even to folks who don't already know what they want, though. A few months ago, at my local Future Shop (a Canadian retailer owned by Best Buy), a salesman tried to convince me that an underpowered Atom netbook would be a better purchase than an attractively priced Consumer Ultra-Low Voltage ultraportable.

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