Why Best Buy took such a tumble

The basic explanation for the dismal third-quarter results is that too many other retailers - online and offline - are offering the same merchandise at a somewhat cheaper price. That, and the fact that it's become much easier for consumers to find that lower price. From the WSJ:

With retailers such as Wal-Mart Stores Inc. and Amazon.com Inc. growing more aggressive on pricing, and GameStop promoting a loyalty program, Wedbush Securities analyst Michael Pachter said Best Buy is losing ground quickly. "I don't know how Best Buy ever gets out of this," Mr. Pachter said, as consumers have more opportunities to comparison shop and Best Buy isn't meeting the competition on prices. Best Buy now expects domestic market share to decline for the full fiscal year compared with the prior year.

Another factor, says Louis Bedigian at Bensinga, is Best Buy's lethargic online sales.

Simply put, Amazon offers more options than any other site. In addition to its own warehouse of items, the company allows other (and often independent) organizations to sell their items on Amazon.com. This gives consumers a plethora of additional pricing and availability options when shopping online. At this time, Best Buy cannot be expected to do the same. But if it wants to survive in this highly competitive market, management must realize that item variety, availability, and website usability are three of the key ingredients necessary to design a successful dot-com.

What a difference from a year ago when Circuit City was liquidated, and the conventional wisdom was that Best Buy would clean up in the consumer electronics market. The stock tumbled more than 14 percent today on the poor earnings results.