Further Confirmation

Best Buy’s poor results today are not a glimpse into the future but a mirror into the past.

As we have been saying for much of 2010 this year is likely to be a very difficult one for most consumer electronics categories. Very high penetration rates and the effect of two years of growth above the overall retail economy have put consumer electronics ahead of the curve. It is now time that the rest of the market catches up.

Online has emerged as a strong alternative channel every day of the week, not just on Cyber Monday. New customers are more likely to focus on entry-level, low-cost products and replacement purchases as opposed to additions to their home installed base. The net result of 2010 is likely to remind the CE business that unlimited, unrestrained growth is not a divine rite and that in a heavily saturated market new user paradigms and new product platforms are the way to recapture the sparkle for electronics.

It is worth reminding ourselves that as CE has moved away from its position as a luxury, discretionary purchase and towards the role of household necessity our results have become more tuned to the overall economy, and in a saturated marketplace it therefore becomes a postponable purchase, when a necessity just works and does what it is supposed to consumers are less likely to replace it, regardless of the technological benefit. What is notable is that the two strongest areas for Best Buy, mobile phones and tablets, are both blazing new ground, attracting new customers to new product ownership and usage paradigms. These are the product categories offering that new user paradigm that is the future of CE. And as that future gets closer to the present we will likely see those efforts pay off.

Stephen Baker, Vice President, Industry Analysis for The NPD Group