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Electronics retailers getting some poor reception Add to ...

Electronics retailers are encountering some static this holiday season. Swanky new 3D and Internet televisions are languishing on the shelves and even game consoles, notebook computers and regular flat-screen TVs are losing their allure.

"The overall electronics space is very competitive right now," particularly for televisions, said Michael Culhane, senior vice-president at Hudson's Bay Co., (HBC) which owns the Bay and Zellers. "We see a lot of price compression."

The pressures surfaced at Best Buy , the dominant electronics retailer in North America which reported disappointing third-quarter results on Tuesday and lowered its profit outlook for the year, sending its shares down almost 15 per cent.

In Canada, same-store sales at its Best Buy and Future Shop stores fell 4 per cent, a steeper decline than the company's overall 3.3-per-cent drop, although trailing the 5-per-cent dip at U.S. outlets. Same-store sales at outlets open a year or more are an important retail measure. Overall quarterly profit fell 4.4 per cent.

"Earnings were less than we anticipated," said Brian Dunn, chief executive officer at Best Buy. "The newer technologies like 3D and IPTV, which we [carry]more broadly than anyone, have been slower to take hold."

Best Buy faces a glut of flat-screen televisions that is driving down prices as demand falls off. Industry estimates show the TV market tumbled "double digits" in the third quarter, Mr. Dunn said. The video games and notebook computer businesses are also being squeezed. Key culprits: discounters such as Wal-Mart Stores Inc. and Amazon.com Inc.

"It appears that the electronics specialty channel is losing ground," said Adrian Murphy, vice-president at market researcher Synovate Canada. "With the recession layered on top of that - consumers are much more price-conscious."

In Canada, Best Buy grapples with the added strains of cross-border shopping, he said. With the loonie close to parity with the U.S. dollar, Canadian consumers have flocked to U.S. stores or their websites this holiday season.

During the U.S. Thanksgiving weekend, the traditional kickoff to the peak shopping period at the end of November, electronics were a top purchase by Canadians at U.S. stores, Mr. Murphy said.

Domestic retailers are feeling the heat: In the year ended June 30, sales of electronics at Canadian retailers (not including computers and video games) slipped 4.2 per cent to $9.5-billion (Canadian), according to Statistics Canada.

HBC, a smaller player in the sector, has also felt the pinch. Video games, for example, have become a tougher sell. "It competes with the phone and other fun things that kids have today," Mr. Culhane said. "They're all texting."

At Best Buy, Mr. Dunn is countering the trends by rapidly opening Best Buy Mobile standalone stores, shifting focus to mobile phones, which is one of the bright spots in the segment. And he's touting its Geek Squad tech support and other services more than ever, partly to help bolster sales of related products.

In the third quarter, Best Buy's mobile phone same-store sales jumped 30 per cent, representing the highest gross-profit growth category at the retailer, Mr. Dunn said. The chain introduced four new tablets and five smart phones that are carried only at Best Buy, he said.

Other strong areas include e-readers, he said. But he's betting that 3D and Internet TVs will eventually resonate with customers. "We are confident that these exciting new technologies will take off."

The company also enjoyed strong results at its Five Star chain in China, where its quarterly same-store sales soared close to 30 per cent amid improved operating profit margins, he said.

But in Canada, Best Buy suffered "many of the same top-line headwinds that were experienced in the [U.S.]" chief financial officer Jim Muehlbauer said.

Best Buy profited last year by the demise of competitor Circuit City Stores Inc. but those short-term gains have now evaporated, analysts said.

In the quarter ended Nov. 27, Best Buy's profit dropped to $217-million (U.S.) or 54 cents a share from $227-million or 53 cents the previous year (because the number of shares outstanding dropped.) Revenue fell to $11.89-billion from $12.02-billion. The same-store sales drop compared with a 1.7-per-cent increase a year earlier.

Best Buy lowered its per-share profit forecast for the year to $3.20 to $3.40, from $3.55 to $3.70, which it had raised earlier this year.





Follow on Twitter: @MarinaStrauss

 
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