Shares in electronics retailer Best Buy (NYSE:BBY) jumped 5% this week on news that its founder Robert Schulze is looking to buy out the company he founded. Schulze already owns about 20% of the company's shares. Earlier this month, Schulze resigned from Best Buy as its chairman of the board.

Investopedia Broker Guides: Enhance your trading with the tools from today's top online brokers.

A Surprise Move
Schulze's news came as a surprise to investors. When Schulze resigned, analysts suggested that he would be looking to unload his block of shares to a potential buyer, perhaps even a private equity firm. Indeed, the only news is that he is exploring options regarding his 20% stake. Therefore, in the end, a sale of that stake may be what happens. However, Mr. Schulze may have other plans for the company that he founded. Regardless of what those plans may be, Best Buy is no longer operating in the same environment as it once did. Shares are currently trading for $20, down over 40% from where they were a year ago. Once viewed as the dominant big-box electronics retailer that was responsible for the demise of Circuit City, Best Buy finds itself now competing in a different world.

Going Online
While demand for electronics remains robust, consumer preferences have changed dramatically. Best Buy has become a physical catalog as people visit the store to examine the product only to turn around and purchase it for less money online.

Furthermore, online retailing giants like Amazon (Nasdaq:AMZN) can carry a lot more inventory at a fraction of the cost. If that weren't enough, today's hottest selling electronics are small handheld items like smartphones and tablet computers. Those products require very little shelf space, which further destroys Best Buy's big-box concept. In 2010, Apple's (Nasdaq:AAPL) retail stores generated over $5,000 per square foot, while Best Buy generated around $830 per square foot. Today, that gap has likely grown wider and more profitable for Apple, and more painful for Best Buy.

The Bottom Line
Going forward, regardless of whether the company is sold, bought out or stays public, Best Buy can no longer operate the same way. Amazon changed how consumers buy books and that has all but eliminated traditional bookstores. Netflix (Nasdaq:NFLX) led to the bankruptcy of Blockbuster video. Best Buy doesn't have to turn out like Blockbuster, but the company will have to adapt sooner rather than later.

At the time of writing, Sham Gad did not own shares in any of the companies mentioned in this article.

Related Articles
  1. Mutual Funds & ETFs

    What Exactly Are Arbitrage Mutual Funds?

    Learn about arbitrage funds and how this type of investment generates profits by taking advantage of price differentials between the cash and futures markets.
  2. Investing News

    Ferrari’s IPO: Ready to Roll or Poor Timing?

    Will Ferrari's shares move fast off the line only to sputter later?
  3. Stock Analysis

    5 Cheap Dividend Stocks for a Bear Market

    Here are five stocks that pay safe dividends and should be at least somewhat resilient to a bear market.
  4. Stock Analysis

    The Biggest Risks of Investing in Amazon Stock

    Find out which risks are most important to Amazon's shareholders. Learn which operational risks impact share prices and which financial risks affect investors.
  5. Investing

    How to Win More by Losing Less in Today’s Markets

    The further you fall, the harder it is to climb back up. It’s a universal truth that is painfully apparent in the investing world.
  6. Fundamental Analysis

    Use Options Data To Predict Stock Market Direction

    Options market trading data can provide important insights about the direction of stocks and the overall market. Here’s how to track it.
  7. Stock Analysis

    2 Oil Stocks to Buy Right Now (PSX,TSO)

    Can these two oil stocks buck the trend?
  8. Investing News

    What Alcoa’s (AA) Breakup Means for Investors

    Alcoa plans to split into two companies. Is this a bullish catalyst for investors?
  9. Investing

    A Look at 6 Leading Female Value Investors

    In an industry still largely predominated by men, we look at 6 leading female value investors working today.
  10. Term

    What Is Financial Performance?

    Financial performance measures a firm’s ability to generate profits through the use of its assets.
  1. Can working capital be too high?

    A company's working capital ratio can be too high in the sense that an excessively high ratio is generally considered an ... Read Full Answer >>
  2. How do I use discounted cash flow (DCF) to value stock?

    Discounted cash flow (DCF) analysis can be a very helpful tool for analysts and investors in equity valuation. It provides ... Read Full Answer >>
  3. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  4. What is the formula for calculating compound annual growth rate (CAGR) in Excel?

    The compound annual growth rate, or CAGR for short, measures the return on an investment over a certain period of time. Below ... Read Full Answer >>
  5. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  6. When does the fixed charge coverage ratio suggest that a company should stop borrowing ...

    Since the fixed charge coverage ratio indicates the number of times a company is capable of making its fixed charge payments ... Read Full Answer >>

You May Also Like

Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!