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3 Things That Could Save Best Buy This Holiday Season

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Best Buy Sales
J Pat Carter/AP
The market ate up Best Buy's (BBY) quarterly report on Thursday, sending the shares 7 percent higher on the day. However, even with Thursday's pop, the stock is still trading lower than it was when the year began. Sure, it's also important to remember that the stock nearly quadrupled in 2013. Investors who have owned the big-box retailer of consumer electronics can't complain too much if they've owned the stock for two years.

However, there's plenty riding on Best Buy as we kick off the 2014 holiday shopping season. Let's go over a few of the things that will need to go right to keep the recent positive momentum at Best Buy going.

1. Be a Dot-Com Darling

Revenue climbed a mere 0.6 percent at Best Buy during the third quarter, and it would have been slightly negative if it wasn't for a nearly 22 percent pop in online sales. Clocking in at $601 million, online sales made up 6.4 percent of Best Buy's revenue. It's going to have to keep growing.

The holiday quarter will be a challenge. Walmart (WMT) has stepped up its efforts to price-match leading online sites this season. This follows Best Buy's lead, but it may also find some shoppers going to the larger Walmart to check off their holiday wish lists.

Best Buy also said on Thursday that online sales growth will be stacked against last year's results, when the rollout of the Xbox One and PS4 consoles padded sales as early adopters scrambled to order the video game systems.

2. Get Services Back on Track

One of the more surprising setbacks at Best Buy in its fiscal third quarter was a better than 10 percent slide in services comparable sales. Best Buy claims that this was driven largely by lower mobile repair revenue given a decrease in claims, but it also points out that attach rates -- the percentage of people who opt into one of Best Buy's services when making purchases -- were lower this time around.

That's not good. The economy's improving, so it's not as if customers don't have as much money as they did a year ago to protect their purchases. Best Buy also recently introduced a new insurance program for lost or stolen smartphones, expanding the number of offerings that it makes available.
Services are important. They keep customers close with offerings that can't be conveniently duplicated by online merchants. They also keep customers coming back.

3. Navigate the Set-Top Challenge

Selling TVs hasn't been easy lately. Just ask Sony (SNE), which after several years of losses spun off its TV subsidiary earlier this year. On the retail front, the 3-D craze never truly took off, and now the smart television movement is being challenged by a wave of set-top gadgetry.

Roku, Chromecast, and now the Fire TV Stick given anyone with a modern TV the ability to turn it into a streaming machine. There's no need to trade up to a smart television. That's a pretty big deal given the growing popularity of streaming services.

Best Buy is hoping that ultra-high-definition TV, or 4K, will catch on. It has even been expanding the number of stores that have Magnolia home theater design centers. However, consumers still need to be convinced that 4K is worth the investment, especially for those who rely heavily on streaming where connectivity speeds need to improve. This will be a hot category to watch for Best Buy this holiday shopping season. It needs to be a TV star.

Motley Fool contributor Rick Munarriz has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. Want to make 2015 your best investing year ever? Check out The Motley Fool's one great stock to buy for 2015 and beyond.

 

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