Pain for Best Buy after Future Shop shut

Best Buy Canada will see a dramatic reduction in fourth- quarter revenue after a tepid holiday sales season and the fallout from shuttering the Future Shop chain last year, its parent company said Thursday.

In a holiday report that released nine weeks’ worth of results ended Jan. 2, Minneapolis- based Best Buy Co. said international revenue declined 26 per cent to US$911 million in the period compared with a year earlier driven by a foreign currency hit of about 13.5 per cent, operating 68 fewer large-format stores in Canada amid “ongoing softness in the Canadian economy and consumer electronics industry,” the company said in a statement.

The company’s i nternational division includes 136 l arge stores and 56 smaller mobile stores in Canada, as well as 18 large stores and five small format stores in Mexico.

It comes as the Canadian electronics giant battles Amazon, Apple and niche mall players in an increasi ngly price- c ompetitive marke t . The c o mpany closed down its Future Shop chain last March in a bid to consolidate the brand and lower real estate costs and duplication, laying off 1,500 part- time and full- time employees.

For the fourth quarter ending Jan. 30, Best Buy is a predicting a 1.5 per cent decline in U. S. revenue and a bruising 30 per cent decline in its international division.

“The whole industry is changing and online sales are really impacting consumer behaviour when it comes to electronics,” said Alex Arifuzzaman, partner in Toronto- based retail real estate specialist InterStratics Consultants.

“It is a hypercompetitive area because the margins are very tight. And it is a commoditized area, so it becomes about competing on price. A lot of the highmargin Best Buy items that were making money in the past have also declined — cables, ink cartridges, CDs.” Thursday’s release does not shed light on how much of Future Shop’s lost business has been recaptured by Best Buy, he added.

Best Buy had no comment on the preliminary results on Thursday.

Competition has also intensified in recent years in the mall, he noted, as more niche players have sprung up to sell cell phones and accessories, and the continued expansion of Apple stores, which are smaller and more heavy on one- toone expert service for the brand.

Revenue f or t he consumer electronics industry declined 4.8 per cent in the nine weeks ended Jan. 2 compared to the nine weeks ended Jan. 3 a year ago, according to NPD Group. That includes sales of televisions, desktop and notebook computers, and tablets — categories that make up about 65 per cent of the company’s domestic revenue. ( NPD’s consumer electronics group data does not include mobile phones, appliances, services, gaming, Apple Watch, movies or music).

Beyond any economic factors, weakness in broader consumer electronics sales often arises when the industry is upgrading current market devices rather than debuting entirely new technologies.

“There doesn’t seem to be a new exciting piece of consumer electronics on the horizon, no major new device,” said Alan Middleton, marketing professor at York University’s Schulich School of Business, citing the ongoing consumer electronics showcase of new products in Las Vegas, which did not unveil a “particularly commercial” line- up of goods this year.

“One of the things that tends to drive people to the electronics retailers is the really new stuff. And Canadians classically are not rapid replacers, if there is not a big ( technology) breakthrough,” he said. “We will hang onto things like cars and consumer electronics for longer.”

Best Buy shares fell about 10 per cent in mid- afternoon New York trading.

NO EXCITING PIECE OF ELECTRONICS ON THE HORIZON.