For Best Buy, discounts aren’t the best deal

Lisa Napoli Dec 12, 2006

KAI RYSSDAL: If you’re in the market for a flat-panel television here’s a deal. Sets that were selling for $1,300 not too long ago can be had for less than a thousand now. Great news if a TV is on your Christmas list. Not so hot if you’re the guy who sells them. In this case, Best Buy. The company announced this morning profits were up 9 percent in the third quarter. But Marketplace’s Lisa Napoli reports that’s not the whole story.

LISA NAPOLI: Sure, Best Buy is selling more. The trouble for the country’s largest electronics retailer is they’re selling more at a discount. Analyst Soo Ann Roberts of Kauffman Brothers blames wavering profits on rivals like Wal-Mart and Circuit City. They’ve been slashing prices.

SOO ANN ROBERTS: The level of aggression in terms of discounting pricing was greater than, certainly, we had anticipated.

And the Best Buys of the world had no choice but to follow. So says Mark Clothier of Bloomberg.

MARK CLOTHIER: As the Best Buy CEO said today, when your name is Best Buy and that’s over the door, you sorta have to live up to it.

Getting customers in the door, whatever it takes, is particularly important when the forecast is for a lukewarm holiday season. Analyst Paul Nolte of Hinsdale Associates says Best Buy’s earnings report is a crystal ball of the bigger economic picture.

PAUL NOLTE: We’re seeing the consumer as definitely pulling in the horns and being a little bit more cautious here—and completing the puzzle, at least in our view, that the economy is not very robust and is more on a slide than it is on the rebound.

Just like flat panel prices, which are down 30 percent this year. One way Best Buy’s hoping to combat the price wars is by selling more service. The company said today it’s expanding its home theater installation business.

In Los Angeles, I’m Lisa Napoli for Marketplace.

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