Collision Course Best Buy

[K5SS]

I am sure this was a contract that Apple had with BB. In other words, the only items the employees were allowed to sell before the store's actual hours were Apple products or more specifically, the iPhone 6. 

 

I am not saying the employee handled it correctly but let's face it, he probably only makes $15/hr and doesn't really care if the business model works.

[Fjd]

 

I always thought that the real money was made on the contracts, not the phones themselves.  Plus, if you get them into your store, they're liable to find something unrelated to buy.  FWIW, I've never worked in an electronics store.

 

 

 

Agreed that the contracts are where the "big" money is made.  Let's peel back the layers on this "onion" and see what we find.  For example, if you ever study the 'fine print' of those contracts, the buyer is essentially just "financing" the purchase of the phone through the service carrier selected.

 

If a person does some comparison shopping of prices for an 'unlocked' phone without a contract they will pay ~ $649 for an unlocked iPhone 6 and ~ $749 for the unlocked 6 Plus and have a variety of plans available from the service carriers to pick a plan better tailored to fit their needs.

 

The "service contract price" of $199 or cheaper can probably be thought of more accurately as the "down payment" on a financing plan.  Note that the service carriers are not in the business of loosing money or giving away money and there really isn't much in the way of "variable costs" to a carrier in regards to increasing the subscriber base (i.e. in general, costs are basically the same for 5,000 subscribers as costs would be for 500,000 subscribers).

 

Basically, every carrier offers a customer the option of buying the phone outright; however, careful study of the fine print to the "contract service plan" entered into to get the $199 price will typically show that the carrier is offering a $450 "subsidy" to buy the phone with only the "specific options" that come with a "specific plan" as part of the contract.  I would imagine that the store (acting in some respects as a 'broker' with representation of all carriers in the stores) that sold the phone and service contract (i.e. Best Buy, Radio Shack, etc.) would get that $450 as a kick back for making the sale.

 

I believe that in some respects, people may be experiencing the allure of the "Siren" with the "impression" that they are purchasing a very expensive phone at a "cheap" price; however, in most instances the customer will pay a couple of hundred more for the phone over the plan period than if they would have bought the phone outright and had more flexibility in selecting the various plans offered.

 

In addition, I seem to remember a research firm called UBM TechInsights published a report back in 2012 that estimated the iPhone 5 cost Apple ~ $167 each to manufacture.  Seems to be a lot of profit to go around to those involved.

Edited September 19, 2014 by Fjd

[The History Kid]

That only applies to the retail outlets such as Verizon, AT&T and Sprint (along with the other carrier stores) - it has no bearing on what stores like Best Buy or RadioShack make on the product.

[Fjd]

That only applies to the retail outlets such as Verizon, AT&T and Sprint (along with the other carrier stores) - it has no bearing on what stores like Best Buy or RadioShack make on the product.

 

It believe that it is much easier to spot the situation of the "subsidy amount" at the service carrier store level than it would be to recognize at a retailer such as Radio Shack.  Similar to when General Motors (GM) owned General Motors Acceptance Corp (GMAC), there were strong financial reasons for GM dealers to push a car buyer into buying certain cars and to push a buyer to GMAC vs other financing options outside the businesses that made up the "consolidated corporation" of GM.

 

I do not believe that these types of arrangements are ever evident at the "retail store" level for a Radio Shack, Best Buy, Walmart, among other authorized sellers of the iPhones (iPhones as an example) and cannot be found on the books and records kept at the store level. 

 

While it is very difficult to discern actual financial numbers related to profits from the sale of iPhones from the public company consolidated financial statements (i.e. Best Buy consolidated financial statements do not have disclosure at that level of detail), these types of deals would most likely be higher-level corporate negotiations and transactions recorded on the consolidated books and records of the general accounting group for the entire corporation and outside the books and records of individual stores.   

 

Although there is not a great selection, in looking at the Radio Shack website, Radio Shack does sell certain unlocked phones and "no contract" phones for more than the price that a customer would pay when entering into a contract with a service provider that would provide the "subsidy" to the customer. 

 

Note that in addition to the cell phone service carriers such as Verizon, ATT&T, etc., the Apple store itself, Best Buy, Radio Shack, Staples, Sam's Club, Walmart and Target are all authroized sellers of the iPhone 6 and 6 Plus that have been configured for the various service carriers on lauch day. 

 

From your experience, does Radio Shack negotiate cell phone inventory purchases with the manufacturers such as Apple, Samsung, Motorola, etc. for wholesale pricing on cell phone inventory or does Radio Shack not have any dealings with these manufacturers and does all of their negotiation directly with the carriers such as Verizon, ATT&T, T-mobile, etc.? 

 

If the arrangement is at the service provider/carrier level, it would seem to be more of an 'agent' type of relationship with certain sales commitments rather than a 'broker' type of relationship by stocking inventory product that can be connected to the individual carriers.  Either way, while the amount of "incentive" may increase with volume or the amount could be benched marked against some other relevant metric to encourage sales and subscribers for a certain service provider/carrier, it would seem that the retailer would get a cut in the "subsidy amount" that is recaptured through the 2-year plan commitment and/or a cut in the "finance charge."  

 

If negotiations are directly with the service provider (i.e. Verizon) to purchase cell phones then "sell it at a loss" with no kick back of the "subsidized amount" from the carrier for the customer entering into the 2-year contract and the retailer does not receive a slice of the "hidden finance charge" that can add $200 or so to the overall commitment, I would agree with you that the business model does not make sense as the additional foot traffic in the stores are not necessarily going to be robust enough where they are buying Radio Shack interconnects and ear-buds to keep Radio Shack afloat. 

 

I know that if I was managing retail stores today, I would not sign an agreement where I was paying $200 wholesale then have to turn around and sell the phone for $119 because some customer wanted to sign a 2-year agreement with a certain service provider and not have a kick back to reimburse me for the normal profit on an unlocked phone or 'no contract' phone.

 

I would think that a likely situation would be that there are some type of wholesale prices negotiated by each of these retailers with Apple and other cell phone manufacturers (i.e. Samsung, Motorola, etc.), which could explain why certain retaliers do not carry certain manufacturers phones even when a service provider/carrier has the phone listed.  Depending upon the respective retail chain's purchasing power (i.e. Walmart most likely has more muscle in negotiations with Apple than Radio Shack) and the inventory mix for these retail corporations could likely corresond to the level of overall incentive that would come from the serivce provider/carrier to push their phone and service vs. a competitor service provider. 

 

For the service provider/carrier it is all about how many subscribers they have.  Given that any variable type expenses are minimal with a subscriber base, once the fixed charges are covered, the increases in subscriber revenues tend to go straight to the "bottome line" as full profit.  

 

It would seem that each of the service carriers want these retail establishments to "push" and "sell" a phone using their service and service plan to finance a phone purchase and each service provider/carrier will compete with the other service carriers to offer the most lucrative deal and these deals with any of the non-carrier retailers would normally be negotiated at the overall corporate level, not at the individual store level.  As a retailer, if there is little, or no incentive for me in selling a phone for a certain service provider/carrier, why do I care about the service provider subscription base or enhancing it?

 

You have to consider economies of scale where the larger players have more leverage.  Look at Walmart's buying power.  Walmart sure isn't at the mercy of the cell phone service providers/carriers and losing money on the sale of each phone.  In fact Walmart doesn't own a cellphone tower at all; however, they offer their own cell phone service to customers at a profit under the "Straight Talk Brand."  The way this is done is that Walmart buys "wholesale" from both T-Mobile and Verizon and "resells" the service to their customer.  I would suspect that the Straight Talk Brand does erode some of the direct T-Mobile and Verizon subscription base; however, it most likely provides much more overall revenue and subscribers using the towers of these carriers with very little addtional cost.

 

There are a lot of niche players entering the "service resell" business too and it has become another way to indirectly increase the subscriber base for the traditional carriers that "own the cellphone towers." I believe that Boost Mobile buys wholesale from Sprint and resells under one of the flat rate 'pay as you go' plans.  There are no discounts with the Boost Mobile phones and a person will pay close to, if not the $649 for the iPhone.  There are other service resellers buying from the other tower owners too.

 

With more wireless devices in the United States than people, adding new subscribers is challenging and typically means winning them from a competitor and there are many avenues to accomplish the goal.  I just don't see the service providers forcing retailers to take the losses in this pursuit. 

[WMcD]

Yeah, I don't understand BB.  Or it seems that sale people are told not to exercise common sense and don't have common sense to begin with.

 

To make a long story short I was essentially ignored and refused service by two worker, a couple of months ago. And I had plastic in hand was ready to pull the trigger.  I eventually bought from Tiger Direct.

 

Yes, they may have been short on staff that Sunday morning. 

 

I have not worked in retail sales but have in analogous situations. When there is a backed up situation, the customers can see it.  If the salesman gives a bit of an explanation and gives an apology, and says I'll get to you as soon as possible, customers really do understand.   In one case the customer quipped that I was doing three things at once, and had sympathy.

 

But . . . . nooooo.  Per Belushi.  With BB.

 

WMcD

[oscarsear]

 

 

 

and on the way home from my gym is the local Best Buy.  I looked online and they had product so I thought I'd purchase from them - help out a little - do my part.  I pull up to the store at 0900.  The parking lot has a few cars in it, etc....... so I park and head to the door where I am greeted by this sloppily attired, corpulent Best Buy employee.  He asks why I am there - so I tell him.  He say I can't go in.  "The store is open early only to sell Iphones."  I'd have to come back in an hour - at 10, their regular opening time.  

 

 - "We have nobody working in our home theater department so you can't be helped."  I said, well I really don't need assistance choosing the product..... it is just a TV antenna.  And to be honest it is not like your sales folks are all that knowledgeable in the 1st place (to which he took some offense).   You do realize that I can pretty much go anywhere and buy what I need, don't you?

 

BURN!

(cut and paste) I live a little rural

 

I needed to go to Walmart anyway.  Got the antenna...... works fine - 56 channels.  

 

You got 56 channels?      Man, you and I need to talk to figure out exactly "rural" means.  Being in West Virginia, I am also "rural" and when I tested an over-the-air antennae, I got FOUR channels, TWO of which were PBS! 

+++

 

Have you thought about copy and pasting your original post to email and and sending it to Best Buy?  I would be interested to know if they respond to you.

 

Actually what I have is about 12 channels that apparently broadcast over multiple frequencies...........  and several channels of home shopping junk.  But I was pleasantly surprised with the reception here.  These must be fractal antennas, the same products that make cellular phones at all feasible.  

[ChuckAb3]

The issue is that the employee at the door has no discretion, He was told the only thing that was to sell were iphones. When we had small hardware, electronics, food, etc., stores, employees could use their brains and exercise their judgment. In big stores, as with an assembly line, you do what you have been told...no more, no less.

That's exactly it. Smart management would train all its people to react positively whenever a customer shows up with money in hand and wants to buy ... or at least seek out a higher level employee and try to accommodate the customer. Too much to ask?? Apparently so. Bad business?? Yep.

[mike stehr]

.

I am not saying the employee handled it correctly but let's face it, he probably only makes $15/hr and doesn't really care if the business model works.

 

In Idaho?! LOL!! More like about 8 bucks an hour...