Bargain hunters, we hope you’re happy with what you’ve done. Best Buy’s quarterly earnings figures came out on Tuesday, and they aren’t promising, to say the least. Their earnings are down 29 percent year-over-year, though their revenue was up slightly.
The reason Best Buy’s numbers are down this quarter, according to CNBC, is that they offered such deep discounts on big-ticket consumer electronics this year, in order to compete not only with online retailers like Amazon, but also fellow big-box stores like Target and Walmart.
What that means is that Black Friday numbers, no matter what records they break, or how many people get hurt, might not be helping our economy. Ideally, when you go holiday shopping, you’re stimulating the economy. By spending more money than we would normally, collectively, we make retailers more profitable in the winter months, and create more retail jobs, which means these new employees will have money to spend, and the whole things snowballs (read this piece on ‘Santanomics’ in The Atlantic for more on this).
But what if the race to the bottom that retailers compete in every winter has some lasting effects on their profitability, especially in a down economy? Can Best Buy raise their holiday prices next year, without losing the fight with Walmart and the Internet? They attributed a measly 0.3% uptick in same-store sales to their ability to offer discounts. The previous five quarters had seen declines in same-store sales, according to CNBC.
This presents Best Buy with a bit of a Catch 22: they need the bargain basement prices to keep sales volume from declining, but this very business model is eating into their profit margins. Raising prices to reasonable levels will likely hurt their profitability, but keeping them the same or lowering them will hurt them, too.
So what’s the solution here? Maybe Best Buy and other big-box merchants will start relying on new payments systems that will make cashiers obsolete — Google Wallet for example. Cutting labor costs would provide them a way of fixing this problem, and it would also eliminate the need for seasonal labor, thereby lessening the economic impact of Christmas on the economy. It won’t happen next year, but it’s hard not to see the concurrent trends of declining profitability and mobile wallets as troubling for the cashiers among us.
We’re thinking far-off here, but it’s worth thinking about what it might mean that one of our biggest retailers is having trouble making holiday shopping as profitable as it ought to be, and what that might mean for our economy should these trends hold.