Tuesday, September 4, 2012

Stress at Big Box Stores

Over the past two weekends I have visited most of the large big box store chains in my local area, and my general impression is that the big box stores are under stress.

The stress was most evident at Best Buy, which has cut back sharply on its inventory of supplies and no longer carries any major brands in some categories. When we have seen this in other store chains in recent years, we have subsequently learned that the chain was in acute financial distress and unable to finance a normal inventory. Similar things happened, for example, at CompUSA and Sam Goody before their stores closed. Best Buy was getting a disproportionate share of its profits from television sales until last year, but now that the number of televisions in the United States exceeds the number of people watching, it will be impossible to keep up a steady pace of sales in that category. Video games are another category that is hurting, and Best Buy hasn’t been able to develop the same level of credibility in more domestic categories like refrigerators.

A different kind of stress was evident at Staples, which was fully stocked, but was selling many ordinary supplies at premium prices, 20 to 50 percent higher than you would expect to pay previously or elsewhere. Customers are sure to notice and to look for other sources of routine supplies. As the world goes paperless and there aren’t so many customers looking for ink cartridges, it wouldn’t be shocking to discover that there are more office supply stores than the market can support.

In general, the big box stores didn’t represent the usual exuberance of the busy back-to-school season. There were plenty of customers, so that is not the problem. It may simply be that the stores are getting squeezed.