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Best Buy Q1 profit falls by $19m

Analyst believes retailer unlikely to gain games market share

US retailer Best Buy has recorded a first quarter drop of $19 million in profits year-on-year, with net income sitting at $136 million as opposed to $155 million for the same period in 2010.

The company's business model is about much more than just video game software and hardware sales, but as a major US distributor of both, the figures released today certainly give insight into the US retail market.

Whilst the figures are not split clearly into partitions on explicit gaming hardware and software sales, an increase in revenues of 4.7 per cent for computing and mobile phones is likely to represent a rise in mobile handset and tablet sales rather than console and handheld, whilst a drop of 13.1 per cent in entertainment revenue is partly due to a decline in physical software.

Wedbush analyst Michael Pachter sees the group as having stalled in its attempts to gain market share from rival game retailers GameStop, despite a company-wide focus aimed at doing so.

"We are not optimistic that Best Buy can gain significant video game market share against leading specialty retailer GameStop," reads a Wedbush report on the results.

"Despite recent initiatives in video games, GameStop continues to gain market share."

The results will be a blow to the continuing implementation of gaming-dedicated store areas and a new focus on trade-ins and pre-orders, an offering which Pachter believes will still be inferior to specialist retail rivals.

"The company also continued its gaming rollout with a new dedicated desk and pre-order touchscreen in the gaming department of each store," continues the Wedbush analysis.

"The company noted that the pre-owned trade-in desk in certain stores boosted trade-ins and pre-owned sales by a 2:1 ratio. The company is hoping to drive gaming further by giving two million Reward Zone Gamers Club members $100 in Reward Zone points when they pre-order and pick up five games.

"Despite recent positive momentum and creative promotions, we continue to believe that Best Buy cannot compete with GameStop in terms of customer loyalty (through PowerUp rewards), exclusive content (through DLC kiosks), or promotions (such as midnight launches).

"We believe it will be challenging for Best Buy to poach consumers who are accustomed to going to GameStop for used games due to GameStop's convenience and better selection of games (GameStop has dominated the used games business for a long time). A last key area of growth is domestic online sales, which grew at a double-digit rate in Q1."

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