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

AL LEWIS

Jan. 18, 2014 8:51 p.m. ET

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 likeRadioShack

. 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, Amazon.com. 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.