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Console sales mean higher revenue but lower profit for Best Buy

For the fiscal quarter ending May 31, Best Buy revenue was up by over a billion dollars compared to last year. Normally that would be good news, but this year it's something of a mixed blessing.

The problem isn't so much the amount of money they brought in as what was selling. While they had some success selling items like PCs and flat panel TVs, the big story was video games.



In addition to the record setting performance of Grand Theft Auto IV, increased inventory of the still popular Wii helped fuel sales.

“Gross margin should remain under pressure as the mix to gaming and PCs continue as well as increasing pressure from discounters,” Pali Capital analyst Stacey Widlitz wrote in a note to clients yesterday, before earnings were released. “We believe the competitive landscape will continue to move in the wrong direction.”

Written by: Rich Fiscus @ 17 Jun 2008 20:03

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• 6 comments

• iluvendo

  Quote: Pali Capital analyst Stacey Widlitz wrote in a note to clients yesterday, before earnings were released. “We believe the competitive landscape will continue to move in the wrong direction.”
  Translation to english, "What is bad for us (the consumer) is good for them (the sellers)"

  17.6.2008 22:55 #1

• Blackjax

  Free market trade. Translation: Better you than me or kick them while their down.

  18.6.2008 05:05 #2

• susieqbbb

  So selling a bunch of video games at $50.00 a piece is bad for them when all best buy wants to do is sell tv's and pc's that cost consumers thousands of dollers does anyone see a problem with this or is it just me.

  18.6.2008 11:12 #3

• blueroad

  lol sometimes im glad i dont live in the US..Wii for instance may cost a bit more here yet its in abundance so eventually price drops will come regardless of price cuts in the world cause its supplied by a third party importer not by nintendo itself ^^

  18.6.2008 11:16 #4

• ZippyDSM

  Quote:Quote: Pali Capital analyst Stacey Widlitz wrote in a note to clients yesterday, before earnings were released. “We believe the competitive landscape will continue to move in the wrong direction.”
  Translation to english, "What is bad for us (the consumer) is good for them (the sellers)"Actually they make lil profit on each game sold because the publisher jacks the price up so much there is no room for 5-25% profit off each item.
  
  Unlike movies that a retailer can get cheap in volume and make a good overhead selling them, games are jacked to the breaking point by the publisher and the retailer is lucky to make back the loss of space on selling them.
  
  as gaming matures more and more I wonder when it will break from the crappy mass market mentality to the over pricing....its days are numbered without restrutreing the way they are amde and sold.....

  18.6.2008 11:43 #5

• SProdigy

  Originally posted by susieqbbb: So selling a bunch of video games at $50.00 a piece is bad for them when all best buy wants to do is sell tv's and pc's that cost consumers thousands of dollers does anyone see a problem with this or is it just me.Best Buy's largest margin on video games is $8 for most Wii titles. DS, 360, PS3, etc. net them less, like $4 or so, though the cost of the game decides the percentage of profit.
  
  They make little or actually lose on new release CD's, DVD's, iPods and even PC/Laptops. The highest profit makers in the store are appliances, HDTVs, accessories (connectivity cables, carry cases, printer ink, writeable media, etc.) and their high prices services (Geek Squad, Warranties, Installations, etc.)
  
  Typically what you see on sale in the ad IS the best price, even compared the employee discount.
  
  That's the basis of this article. Consoles make BB zippo in profit, that's why the blue shirts push strategy guides, controllers, memory cards, or anything else they can shove in your face, so BB can pay them at the end of the day.
  
  I also wanted to note that's why GameStop sells magazine subscriptions, strategy guides and their main business is used games. You can read all about it in a recent issue of Fortune.

  18.6.2008 12:41 #6