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Best Buy looks to up video game sales as earnings fall short
Jun 16, 2010 (Pioneer Press - McClatchy-Tribune Information Services via COMTEX) --
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Music CDs and movie DVDs sit front-and-center in Best Buy stores, but technology is fast eroding their lucrative sales.
On Tuesday, Best Buy said it would shift some of that space to showcase new video game technology, like Microsoft's gesture-driven Kinect gaming system. And it's carving out a place to trade in or buy used video games, too.
"We want the center of our store to become much more experiential," said Brian Dunn, chief executive of the Richfield-based electronics retailer.
As recently as 2008, about 20 percent of Best Buy's total sales came from "entertainment software" such as movies, music and video games. Now it's 13 percent. Some categories are hanging on better than others.
"Music is definitely regressing the fastest," Dunn said in an interview, and now, "We're starting to see movies move down that line a little bit."
But video games are a different story -- and that's where Best Buy is making a push. Dunn cited the wave of innovation in video gaming, including a slew of announcements this week from the Electronics Entertainment Expo, or E3, which he said would "bring a whole new level of excitement."
Last week, Best Buy said it was launching an in-house gaming magazine, called @Gamer, to compete with the popular magazine of rival GameStop. On Tuesday, Best Buy targeted another of GameStop's thriving businesses, the buying and selling of used video games.
The news pushed GameStop shares lower Tuesday, down 5.4
percent. Still, Best Buy shares did even worse, down 6 percent, after its first-quarter earnings released Tuesday fell far short of analysts' estimates.
In the quarter, net earnings rose 1.3 percent and revenue was up nearly 7 percent, but analysts expected better -- a lot better. Best Buy shares fell $2.49 to $38.56 on a day when the broader market was up sharply.
On Tuesday, analysts pressed Dunn to clarify whether the shortfall reflected problems at Best Buy or problems in the economy. Dunn acknowledged that consumer behavior was choppy and that the company had overspent its budget. But he downplayed worries about both the economy and the company.
"I'm not pleased nor satisfied with our overspend," Dunn said, but he added that the March-May fiscal quarter is its smallest of the year -- just 10 percent of annual sales -- "so my confidence remains very high" that Best Buy will reach its financial targets.
The nation's No. 1 electronics retailer foresees better times ahead, with a wave of hot releases that will generate excitement and sales, including smart phones like the iPhone 4 and the Sprint Evo 4G. But it will also need contributions from segments like used video games, which aren't exactly the latest and greatest.
Best Buy already offers a game trade-in program online and by summer's end, it will be available in stores, too. Gamers can swap used games for Best Buy gift cards, or buy a used game covered by Best Buy's return policy. If it works as hoped, it will replace some of the lost sales of music and movies.
"Part of that solution is to bring people into the store with another offer," said Mike Vitelli, co-president of Best Buy's Americas region. He later told analysts, "We're trying to add things into the center of the store, to replace both the space and the traffic that started to decline in traditional packaged media."
Tom Webb can be reached at 651-228-5428.
To see more of the Pioneer Press, or to subscribe to the newspaper, go to
http://www.twincities.com. Copyright (c) 2010, Pioneer Press, St. Paul, Minn.
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