Analyst: Best Buy to lose market share to Web competitors

Even with billions of dollars in revenue and little competition in the brick-and-mortar electronics market, Best Buy is in danger of losing more market share to competitors, Wedbush analyst Michael Pachter says.

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CNET contributor Don Reisinger is a technology columnist who has covered everything from HDTVs to computers to Flowbee Haircut Systems. Besides his work with CNET, Don's work has been featured in a variety of other publications including PC World and a host of Ziff-Davis publications.
Don Reisinger
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Best Buy is on its way to losing more market share to competing retailers, Wedbush analyst Michael Pachter said in a note to investors yesterday.

"We expect continued market share losses in consumer electronics to online retailers and lower-priced big-box competitors, and entertainment software to GameStop, Amazon, and Wal-Mart," Pachter wrote.

Pachter believes Best Buy's decline is due mainly to its market strategy. The analyst said that the company's "offering the widest selection of goods at premium price points is undermined by value-focused comparison shopping."

During its latest reported quarter, announced last month, Best Buy posted weaker-than-expected sales across several categories, including TVs, computers, and video games. Overall, it saw comparable store sales decline by 3 percent compared to the previous year. However, the company still generated a profit of $217 million on nearly $12 billion in revenue, meaning it might not be time to sound the alarm on Best Buy just yet.

But the pressures Best Buy faces are worrisome. Most products the company sells can be purchased online for less. Even Wal-Mart, one of the company's brick-and-mortar competitors, is besting it on price in some cases. And until it finds a solution, market share erosion could be something Best Buy will continue to deal with going forward.

Moreover, Best Buy's recent decision to discount items to better match the competition might not be something it can sustain for long, Pachter said. He noted that he "expect[s] to see some pressure on margins when [Best Buy] reports its February earnings" later this year due to that decision.

Before that happens, Best Buy is expected to release December sales figures at the end of this week. Pachter believes it will show a 3 percent decline in same-store sales, down from the 2.2 percent decline the analyst first expected Best Buy to post.

But the pangs of being a brick-and-mortar retailer are nothing new to Best Buy. The company has watched as its many competitors, including CompUSA and Circuit City, faltered in the face of online competitors. And at least so far, Best Buy has been most capable of weathering that storm.

Best Buy declined to comment on Pachter's research note.

The company's shares are up $0.60 to $35.07 as of this writing.