Cheap Dream Home Theater Systems Make for Best Buy Nightmare

Photograph by Patrick T. Fallon/Bloomberg

Customers pre-pay for Xbox One video games consoles at Best Buy Co. sales counters in Los Angeles.

Price cuts are making that dream home theater system with surround sound and a big-screen TV a reality for more Americans. For Best Buy, they’ve become a nightmare.

Shares of the electronics retailer have plunged today by the most in more than 11 years after the company said discounting failed to lure as many holiday shoppers as expected.

“Our holiday revenues were negatively impacted by, number one, the aggressive promotional activity in the retail industry during the holiday period, which we believe did not result in higher industry demand and had of course a deflationary impact on our revenue,” Best Buy CEO Hubert Joly said on an earnings call.

If price history on many of the products sold by Best Buy is any guide, it’s gonna be a long slog to boost profitability. And Edward Jones & Co. analyst Brian Yarbrough says that can’t come through cost cuts alone.

Labor Department figures today showed prices on TVs dropped 1.6 percent in December, the most in five months. In fact, the cost of a television has increased in just three months since the beginning of 2000. Not that this is any consolation but the 15.6 percent decline in TV prices last year was the smallest since 2005.

Prices of some other products lining Best Buy shelves and floors are also declining. Americans paid 2.3 percent less for major appliances last year, the biggest decline since 2010, Labor Department figures show. Audio equipment costs dropped 5 percent in 2013 after a 6.9 percent decrease a year earlier. And prices of personal computers and peripherals were down 8.9 percent in 2013.

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