Best Buy has been in the news quite a bit recently with their CEO Brian Dunn stepping down after an investigation into his personal conduct along with questions about the long-term viability of the company. The problems in the consumer technology industry are structural hitting all retailers, suppliers, and brands equally. Retailers were the first to see declining growth with Best Buy being the primary example since they are the biggest and most successful retailer in the industry. Its not that the company didn’t see these changes coming but how dramatically and swiftly they happened over the past year caught them off guard. Despite the problems in the consumer technology industry, Best Buy has done a good job coping with the changes to its business and preserving its legacy strengths.

In 2011, Best Buy’s share of consumer technology revenue stood at 19 percent of hardware sales, according to NPD’s Consumer Tracking Service, exactly what it was in 2010 and what made it the leader in sales by a substantial margin. Best Buy also was the number one brick-and-mortar retailer online and gained almost one point in revenue share, now 22.4 percent, among retailers on the Web. In computers Best Buy’s market share is 10 points higher than any other outlet that sells Windows notebooks and generates 2X more revenue from those sales than any other retailer. They are the largest retailer of Apple notebooks, selling one in every four notebooks in theUS, a number that is 6X larger than any other Apple reseller.

In the fast-growing TV segment of 50” and above, Best Buy’s market share was 31 percent and more than 3X higher than any other retailer. They also sold more tablets than any other retail store or Web site in 2011. In addition, Best Buy saw its unit share of the cell phone sales grow by 25 percent in 2011 and its share of smartphone sales increase by 50 percent. They were the single largest non-carrier outlet for smartphone sales. In all of the most important product categories, ones which represent more than 50 percent of U.S.consumer technology revenue, Best Buy by any objective measure is either gaining share rapidly or maintaining its industry leading position. While there are challenges ahead, Best Buy remains the dominant retailer and in the best position to succeed in the coming years. To read the full article please visit http://www.npdgroupblog.com/2012/04/best-buy-reconstructed/.

The NPD Group, founded in 1967, is the leading global provider of consumer and retail market research information for a wide range of industries. We provide critical consumer behavior and point-of-sale (POS) information and industry expertise across more industries than any other market research company. Through our consumer panel, retail sales tracking services, special reports, and custom research, we help our clients understand and profit from consumer and retail trends. Our data tells them who is buying, what, where, and why in local, national, and international markets. For more insights from The NPD Group, please call 1.866.444.1411 or email at contactnpd@npd.com.

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At our April 25th roundtable, Michael Susserman, Former Vice President of the Managed Care Unit at Pfizer, and Dr. Greg Hummer, Chairman and CEO of Simplicity Health Plans, discussed the shifting strategies for MCO’s and PBM’s. Mike said that the ESI-Medco merger was approved despite the firms’ sizes because larger firms are losing share to growing smaller firms. The rising tendency for health plans to create their own formularies will create a challenge for PBM’s; they will be relegated to an administrative role as they will have less to offer pharmaceutical companies. Greg discussed how PPACA is exerting price pressure and how unlimited coverage has caused hospitals to drive up prices. Legislation is also encouraging insurance companies to move away from group plans and toward self-funded so that they can avoid holding the risk, particularly as the federal oversight board in 2014 begins to regulate premium rates.

Self-funded plans are often much cheaper, with average per capita health care spending at $2,500 versus $21,000 for healthcare plans from a large company. Even Medicaid is moving to a consumer-direct model, which offers more incentive to stay healthy, and Medicaid in many states is being privatized to large carriers, with nearly 100% of Texas Medicaid now private. However, they do not feel that the 16 million additional people that will be on Medicaid will contribute much revenue to companies. The movement to consumer-direct will force PBM’s to change their business model, maybe moving to the web. Michael and Greg also discussed how the MLR rule could do away with consumer-directed plans for large firms, as the firms may be unable to meet the ratio requirements because of high deductibles and low claims costs, despite the current demand for these plans.

Over the past several years department stores and large apparel specialty chains with their traditional mass sourcing methods were at a disadvantage against “fast fashion” competitors such as Forever 21, H&M, and Zara. These traditional methods made it challenging to keep up with the changing fashions of the younger consumer. Several retailers including American Eagle Outfitters, Gap, Macy’s, and JC Penney’s have adjusted their supply chain practices to meet the changing fashion demands. Dick Seesel states, “Many stores (JCP and Kohl’s among them) have taken a page from “fast fashion” retailers by developing their own quick-response brands, such as MNG and Elle. The biggest opportunity for “fast fashion” is in the specialty arena, where some retailers continue to place big early bets on key items — some specialists were loaded with plaid last fall and the clearance racks are still full. It’s well worth considering the cost savings of long-lead time production vs. the cost of money and — most important — the cost of a bad bet.” One major challenge for incorporating “fast fashion” into the larger stores is that most “fast fashion” merchants manufacture goods closer to the point of sale while US retailers are reliant on China, which can cause inventory problems if they make a bad bet. Dick believes, “There is still a place for overseas production of more predictable apparel items, such as opening price knit tops, but it’s worth striking a balance.” To read the full article please visit http://www.retailwire.com/blog-post/4d5e6ab0-ac4a-467f-82bc-b064b588e357/u-s-retailers-try-to-get-faster-with-fashions.

Richard Seesel is the Manager and owner of Retailing In Focus, LLC. He was most recently a Senior Vice President and Divisional Merchandise Manager at Kohl’s Department Stores. Dick is proud to have helped Kohl’s grow from 18 stores to a national retail powerhouse, during an era of change and consolidation throughout the retail industry.

In the first quarter AMD experienced a 1.7% decrease in revenue to $1.59 billion, but posted a $590 million loss after restructuring with GlobalFounderies. In the company’s Computing Solutions segment, income rose by 24% to $124 million, while revenues were flat at $1.2 billion. AMD’s server business experienced a third straight quarter of growth and also gained some market share against Intel in the fourth quarter of last year. Additionally, because AMD reduced prices and began shipping a different mix of “Bulldozer” chips, server chip revenues were down in the first quarter; however, server processor shipments increased. The Graphics division had $382 million in revenues, which is down 7.5% year-on-year, while income was up 78.9% to $34 million. GPU sales for game consoles were down, but they were offset by higher desktop GPU sales, increasing the average selling price. During the quarter AMD also acquired SeaMicro for $293 million and ended the quarter with $1.71 billion in cash. To read the full article please visit http://www.theregister.co.uk/2012/04/19/amd_q1_2012_numbers/.

Tim Morgan is the Systems Editor of the UK based Register and is President and Editor in Chief of IT Jungle. He has been keeping a keen eye on the midrange system and server markets for 15 years, and was one of the founding editors of The Four Hundred, the industry’s first subscription-based monthly newsletter devoted exclusively to the IBM AS/400 minicomputer, established in 1989. For the past decade, Prickett Morgan has also performed in-depth market and technical studies on behalf of computer hardware and software vendors that helped them bring their products to the AS/400 market or move them beyond the IBM midrange into the computer market at large.

Last week Best Buy’s CEO Brian Dunn resigned on what is rumored to be the result of an investigation into his personal misconduct. Dunn became CEO in June 2009 and many investors have been frustrated with his strong focus on physical retailing and the company’s slowness to adapt to competitive threats such as Amazon. Two weeks before his resignation he outlined a turnaround plan that included closing 50 larger stores and laying off 400 workers in an attempt to cut costs by $800 million. They also wanted to focus more on slightly smaller “Connected” stores that ffeature mobile devices and service which accounts for over one-third of their profits. Dick Seesel believes that the company needs a more nimble, forward-thinking leader who can look at the company with a fresh pair of eyes. He states, “Best Buy has not capitalized on fast-moving changes in tech product development (such as the explosion of tablet computing), nor its own core strength in customer service. It has lost share to e-commerce sites like Amazon, and stood by while players like Apple have provided a more innovative in-store experience (granted, with a much narrower, single-brand assortment).” Best Buy has suffered significantly due to the significant decline in movies and CD sales along with weakness in TVs, digital cameras, and videogame consoles but they are in no way in danger of going under. Dick states, “It is still a $50 billion company and the dominant “big box” in its category. But it’s time to reinvent the idea behind Best Buy at a faster pace than Mr. Dunn was prepared to do.” To read the full article please visit http://www.retailwire.com/blog-post/8c6959fc-19c3-42e3-bf68-ed3b2f2cf6bc/best-buys-ceo-resigns-who-next.

Richard Seesel is the Manager and owner of Retailing In Focus, LLC. He was most recently a Senior Vice President and Divisional Merchandise Manager at Kohl’s Department Stores. Dick is proud to have helped Kohl’s grow from 18 stores to a national retail powerhouse, during an era of change and consolidation throughout the retail industry.

At our April 9th Energy Roundtable, John Hofmeister and Kevin Lindemer discussed global oil demand. Kevin said that it can potentially peak in the next decade as prices and advances in technology drive down demand. John argued that if world economic growth increases at 2-3% per year there could be an energy shortage from 2012-2016, particularly in crude oil as demand increases in developing countries. The refineries on the east coast closed recently because the market did not need them, and their closure has not affected prices. However, logistics bottlenecks include transporting crude oil from the mid-continent to the Gulf Coast, refined products from the mid-continent to the east, and refined products from the Gulf Coast to East Coast, the latter made more difficult by the expense of coastal freighting resulting from the Jones Act.

John is part of the US Energy Security Council which has advocated for displacing imported oil for transportation with fuels made from domestically produced natural gas. There could be 5 million barrels a day of displacement after 10 years; that level could be achieved through a flex fuel vehicle mandate. Three problems for implementing such a mandate would be EPA air quality standards, the auto industry fighting the additional costs, and the capital cost of producing methanol with new producers if current refiners resist. John does not think that coal will be displaced, but rather exported because of political lobbying. They also discussed politics and what would occur if President Obama were reelected in the fall, and both agreed that if he is reelected the House and Senate would prevent any real policy action. There is also the possibility of programs being defunded, particularly policies that are against coal. If Romney is elected the federal regulations passed in recent years could be overturned, and there would be more focus on displacing imports.

J.C. Penney’s recently announced that the company will be laying off 1000 employees in an attempt to reduce costs. 600 of the employees will be from company’s headquarters and 400 will be cut from the call center based in Pittsburgh. This should come as no surprise because Ron Johnson stated in January that the company had to reduce SG&A to 30% of sales in order to become more competitive and profitable while promising to cut $900 million of expenses by the end of 2013. Some observers have concluded that JCP sales are falling faster than expected. This could mean that the $900 million cut in expenses might not be enough to get to the 30% number promised by 2013 especially with many of their initiatives promised, like the Town Square, being quite labor-intensive. Therefore, Dick Seesel believes it is important JCP employees to understand that this could only the first wave of cost cutting since the reinvention of the company is positioned as a four-year project. The company needs to drive more sales moving forward to be considered a long-term success so it will be interesting to see whether these cost reductions will be enough. To read the full posting please visit http://retailinginfocus.wordpress.com/2012/04/09/jcp-payroll-reductions-will-they-be-enough/.

Richard Seesel is the Manager and owner of Retailing In Focus, LLC. He was most recently a Senior Vice President and Divisional Merchandise Manager at Kohl’s Department Stores. Dick is proud to have helped Kohl’s grow from 18 stores to a national retail powerhouse, during an era of change and consolidation throughout the retail industry.