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Who Will Fill The Void If Best Buy Goes Bankrupt?

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Magnolia_Relocation.jpgYesterday, HomeTheaterReview.com's content coordinator Pierce O'Toole and I headed down Wilshire Boulevard to a restaurant we call "the triple C" (aka: California Chicken Café) for a late, healthy lunch. En route, both of us noticed the huge "RELOCATION SALE" banners flying from the roof of our local Santa Monica Magnolia AV store. This store is the full, standalone Magnolia store, with all of the top products that they sell. Compared to a Magnolia inside a Best Buy, the standalone stores have more boutique components, better demo rooms and quieter environments for conducting business. A call over to the Magnolia AV store yielded some good news, as nobody is losing their jobs with the relocation/consolidation of the full Magnolia store and our local Best Buy. The boutique store is gone, but then again, hundreds of other boutique AV stores have folded, everything from Tweeter to audiophile salons and more.

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There are many, including me, who think Best Buy has one foot in the grave and another on a banana peel. The latest critic is Larry Downs at Forbes.com, who also thinks that big box behemoth Best Buy is in big trouble and takes a very serious look at the company's issues in this insightful article. There is no question that Best Buy has big challenges in today's market. Forget their CEO being run out on a rail for less-than-CEO-like behavior. They have other problems, including that they don't routinely use highly-trained commissioned sales people, while opting for more clerk-level "blue shirts." Their bean counters are jamming on the brakes at a time when they could be growing and taking back market share that has been up for grabs since the housing market went down the toilet in late 2007. More worrying still is the fact that Best Buy sells consumer electronics that are becoming much more like white goods or commodity-driven products, which results in tiny profit margins that allow for more profit from online retailers like Amazon.com than stores with actual brick and mortar overhead. Lastly, Best Buy's own name implies that they are the place to get the best deal, yet anyone with a smart phone and a bar code scanning application can determine that Best Buy could easily be renamed "worst buy," as they charge upwards of $35 for a Blu-ray title (or $50-plus for 3D titles) when these can be had for 20 to 33 percent less locally and at even lower prices from the Internet.

Generation Y customers, the biggest demographic in United States history, love music and media more than any group before them, but they are careful consumers. Student loan debt, under-employment and their overall young age keep them from being big spenders. Even with the frugal nature of today's youth, there is quite a bit of market share out there for the taking. Circuit City is long gone, as are the 33,000 jobs that were lost with the chain. The Good Guys went out of business. Ultimate Electronics also folded. Correction: The demise of national mid-fi and custom installation chain, Tweeter, has been well documented. Regional chains like Meyer Emco have vanished, along with countless other, more local outlets. Best Buy, with their noted problems, isn't picking up the slack in the marketplace the way they should with Magnolia AV stores, Magnolia stores inside of Best Buy and Best Buy locations alone. The big winners are the likes of Costco, Wal-Mart and online retailers like Amazon.com. On price, Costco and Wal-Mart are willing to sell flat HDTVs as if they were a $2,995 box of Cheerios. For Amazon.com, they have spent the better part of 20 years earning the goodwill of consumers who now buy freely on the Internet.

I wouldn't argue with you if you wanted to suggest that Best Buy's days are numbered. If they went the way of Circuit City and the others before them, who might fill in the empty hole in the market? Is there no room for specialty AV in the marketplace, or could Magnolia return to its roots and be its own relevant, standalone chain? Amazon.com and other online stores will clearly pick up a good chunk of the market share if/when Best Buy finally tanks out. The interesting question is: could specialty retailers ever grow from the ashes of a Best Buy flameout? Do consumers want the special experience and the sales expertise, and could these upstart dealers offer enough value to consumers to make buying products for a fraction more money make more sense? Apple stores get premium prices for everything that they sell, resulting in very high profit margins, but they also deliver a fantastic user experience. Could a new-growth specialty AV dealer deliver the same value proposition? If/when Best Buy goes the way of the dodo bird, we might get a chance to find out, but it won't be without fallout. The brands currently selling to Best Buy may or may not be ready for this market leader to croak. That's yet another ripple in the pond that has yet to hit and, for many, the ripple will be like a tsunami.

Additional Resources
• Read more original commentary like this in our Feature News Stories section.
• See more industry trade news from HomeTheaterReview.com.
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