I just read this on my browser…MINNEAPOLIS (AP) — Best Buy returned to a profit in the fourth quarter and topped Wall Street expectations as it cut costs to offset declining sales.
Guess what? The stock price is soaring so far today.
I’m not even going to get into the details of this story. I think it is good enough to simply comment on the snippet because it speaks clearly to two big problems 1) The world of retail marketing and 2) the Wall Street world of investing.
First, let’s look at what the lead sentence had to say about Best Buy. (For those of you outside of the US who do not know Best Buy, it is primarily a big-box retailer for electronics and appliances. Just to give you a broad idea as to how backward this brand it, three years ago almost 25% of its retail space was dedicated to DVD, CD, and Blu-Ray purchases. You don’t need much more insight into this brand than that.)
The headline says that the brand has returned to profitability even though the retailer’s sales are declining. In other words, sales are down, the brand is underperforming in the crucial test of same-store sales vs. year ago and the retailer is fixing the problem by cutting costs.
As Woody Allen satirically wrote years ago in his very funny collection of short stories called Getting Even, “We were cutting down on meals to save money for food.” The irony of this statement is apparently funny to everyone else except Best Buy.
Remember some years back when Steve Jobs was making fun of his predecessor at Apple, Gil Amelio: “Apple is like a ship with a hole in the bottom, leaking water, and my job is to get the ship pointed in the right direction.”
That statement alone was enough to get Gil packing his bags. It’s time for management at Best Buy to pack their bags.
The job of the CEO is to identify the right problem and then fix it. Best Buy’s problem is not high costs. It is falling sales. It has lost any brand preference it once had. Soon, it will follow Circuit City and close its doors.
However, the other story buried here is the foolishness of Wall Street investors who buy the stock in a frenzy because of the return to profitability. What the hell is going on here? Didn’t the report just state “declining sales”?
So something is wrong with Best Buy and something is terribly wrong with news of a stock price rising as an indication of a brand’s health.
What’s next? News stories on the winner at the roulette wheel?