Tuesday, September 13, 2011

Is Best Buy Losing Market Share?

Best Buy reported earnings on Tuesday and disappointed relative to analyst estimates.  The shares are down 7%, and many are talking about how the company is in secular decline--just becoming "Amazon's showroom."  In order to assess the validity of the statement, below is a chart of BBY's North American revenues as a percent of total US retail sales.  Included in the chart are AMZN's consumer and electronics segment sales for North America and AAPL's retail segment net revenues (includes some foreign revenues).

Click to Enlarge.  Source: Company Reports and Retail Sales (Census Bureau)

Although BBY's share did turn down in 2010, its share of retail sales has increased overall, even just since 2007.  In fact, aided by Circuit City's bankruptcy, BBY's share of retail sales in the consumer electronics retail space has increased significantly over the past several years to 37% of the market.

Still, if brick and mortar outlets are losing share to e-commerce, BBY's share gains are a hollow victory.  Looking closely though, there's reason to believe that brick and mortar share isn't declining as much as some might expect though.  While it's true e-commerce is growing very quickly, brick and mortar electronics retail share of total retail sales has been pretty flat since 2002.

Flat share of wallet means that the fortunes of electronics retailers have been tied more closely to aggregate retail sales than secular decline.

This suggests that BBY's problems may be more cyclical than secular and that once the consumer comes back, if the consumer comes back, BBY could benefit.

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