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Struggling Best Buy Is Trapped Between Wal-Mart and Amazon

Struggling Best Buy Is Trapped Between Wal-Mart and Amazon – It’s the Best Thing That Ever Happened to Its Competitors, as reported in the news of the WS Journal.

Best Buy BBY -8.95% still markets itself online as “the ultimate showroom.”

The electronics retailer’s critics have been calling this a deadly idea for years: Customers go to its giant stores to play with its toys, then they buy them somewhere else, sometimes using a smartphone before they even leave the floor.

Best Buy is the best thing that ever happened to its online competitors. This problem has been so huge it inspired a new retail-industry buzzword, “showrooming.” And yet, amazingly, Best Buy still advertises: “Experience the ultimate showroom.”

Anyone surprised by the violent turnaround in Best Buy’s turnaround last week hasn’t been “showrooming” but “mushrooming.”

Best Buy has been playing around with smaller-format stores—trying to be like RadioShack. RSH 0.00% It has been experimenting with store-within-store concepts—trying to be like J.C. Penney. JCP -5.51% And it has closed about 50 big-box stores and has plans to close more—trying to be like Circuit City.

The Best Buy store in my neighborhood has closed, its bright yellow tag covered by a black tarp.

The company’s business plan comes from the cut-your-way-to-prosperity playbook. “One of my middle names is frugality,” Chief Executive Officer Hubert Joly boasted in a conference call with investors on Thursday.

Best Buy stock traded for more than $45 in 2010, and fell below $12 in December 2012 amid brutal competition and a sluggish economy.

It then made an astonishing comeback, hitting a new high of more than $44 in November. But on Thursday, the stock lost about 28% of its value, falling to about $27 a share. On Friday it fell further, to around $25.

Best Buy reported a slump in holiday sales, for the nine weeks ended Jan. 4. The key numbers: Same-store sales in the U.S. fell 0.9% and total revenue slipped about 2.6%.

This is what you get for making employees slave on Thanksgiving: more operating costs, not more sales.

“We were out-competed,” Chief Financial Officer Sharon McCollam said in the conference call with investors, describing Best Buy’s online marketing attempts. “Next year, we’ll be in a much better position.”

Best Buy founder Richard Schulze put out a news release spinning positive electrons: “Best Buy is on this journey and in this business to win.”

The turnaround plan is still a go, Mr. Schulze insisted. (Hey, what’s all the fuss in the stock market? It was only Christmas.)

For all the talk of recovery, consumers are still smarting. In a Gallup poll released last week, 42% said they were worse off now than a year ago and 22% said they were no better off.

For all the promise of technology, there hasn’t been much new to buy this year.

For all the talk of a turnaround, Best Buy is still stuck between the most efficient predator since the shark, Wal-Mart Stores, WMT -0.74% and the world’s most-beloved money-loser, AMZN +0.96%

It’s hard to imagine Mr. Joly out-frugaling Wal-Mart, and as long as Best Buy remains in business, Amazon will never need to invest in its own showrooms.

Perhaps Best Buy can still be a great appliance store: refrigerators, washers and dryers, microwave ovens and giant TVs. This gives it the cachet of, um, Sears.

And as long as it’s a showroom, maybe it should charge admission. Browsers should have to buy a ticket, or a membership, like they do at Costco. COST +0.63%

Or maybe Best Buy could charge Amazon sales commissions.

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Meet Paul Raymond

Meet Paul Raymond

Mr. Raymond is a sought after speaker in tax controversy law by many attorney, accountant, and business groups and at the request of the Internal Revenue Service, has presented programs at the IRS Nationwide Tax Forum, attended by tax professionals throughout the United States.

Additionally, he continues to be an active member in the Section of Taxation, American Bar Association, where he was the Past Chair of the Employment Taxes Committee.

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