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. Economics

    Investing Opportunities as Central Banks Diverge

    After the Paris attacks investors are focusing on central bank policy and its potential for divergence: tightened by the Fed while the ECB pursues easing.
  2. Stock Analysis

    The Biggest Risks of Investing in Pfizer Stock

    Learn the biggest potential risks that may affect the price of Pfizer's stock, complete with a fundamental analysis and review of other external factors.
  3. Stock Analysis

    Why did Wal-Mart's Stock Take a Fall in 2015?

    Wal-Mart is the largest company in the world, with a sterling track-record of profits and dividends. So why has its stock fallen sharply in 2015?
  4. Stock Analysis

    Allstate: How Being Boring Earns it Billions (ALL)

    A summary of what Allstate Insurance sells and whom it sells it to including recent mergers and acquisitions that have helped boost its bottom line.
  5. Options & Futures

    Cyclical Versus Non-Cyclical Stocks

    Investing during an economic downturn simply means changing your focus. Discover the benefits of defensive stocks.
  6. Markets

    PEG Ratio Nails Down Value Stocks

    Learn how this simple calculation can help you determine a stock's earnings potential.
  7. Investing Basics

    How to Deduct Your Stock Losses

    Held onto a stock for too long? Selling at a loss is never ideal, but it is possible to minimize the damage. Here's how.
  8. Investing

    Retailers Rebel Against Black Friday: Bad Move?

    The Black Friday creep may have hit a wall as some stores are shutting their doors on Thanksgiving and even Black Friday to give employees the day off.
  9. Investing

    What’s the Difference Between Duration & Maturity?

    We look at the meaning of two terms that often get confused, duration and maturity, to set the record straight.
  10. Economics

    Is Wall Street Living in Denial?

    Will remaining calm and staying long present significant risks to your investment health?
  1. What does low working capital say about a company's financial prospects?

    When a company has low working capital, it can mean one of two things. In most cases, low working capital means the business ... Read Full Answer >>
  2. Do nonprofit organizations have working capital?

    Nonprofit organizations continuously face debate over how much money they bring in that is kept in reserve. These financial ... Read Full Answer >>
  3. Can a company's working capital turnover ratio be negative?

    A company's working capital turnover ratio can be negative when a company's current liabilities exceed its current assets. ... Read Full Answer >>
  4. Does working capital measure liquidity?

    Working capital is a commonly used metric, not only for a company’s liquidity but also for its operational efficiency and ... Read Full Answer >>
  5. How do I read and analyze an income statement?

    The income statement, also known as the profit and loss (P&L) statement, is the financial statement that depicts the ... Read Full Answer >>
  6. 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 >>

You May Also Like

Trading Center