Best Buy Free TV Delivery Among Tactics Fighting Discounters

Free delivery and setup of giant flat-panel televisions at Best Buy Co. (BBY) is a sign of the competitive times.

What once cost $99 or more is now included in the price of TVs priced at least $999 at the largest U.S. consumer electronics retailer, which throws in free recycling of your old set as well. Sears Holdings Corp.'s (SHLD) namesake department-store chain has also recently offered free delivery and installation on certain large TVs, a value of up to $199.

Such promotions could become permanent or be expanded to other product areas or retailers, given increased competition from Wal-Mart Stores Inc. (WMT), Amazon.com Inc. (AMZN) and other discounters in the wake of Circuit City Stores Inc.'s (CCTYQ) demise earlier this year, according to some industry watchers.

"In this kind of economy, that's the kind of seamless transaction that appeals to the consumer," said NPD technology analyst Stephen Baker. "It makes it a little easier for them to part with their money to know some of these back-end issues are taken care of."

And it's one of the major reasons someone might go to a specialty retailer over a mass merchant offering a similar or cheaper price, he added.

The offers can also reduce product returns and make it easier to sell higher-end models: Best Buy says the offer helped generate increased flat-panel TV sales in the most recent quarter.

At the same time, the promotion was the major reason the retailer's services business posted its first same-store sales decline since Best Buy began breaking out the number more than two years ago. Services revenue fell 3.7% from a year earlier in the Aug. 29-ended quarter, worse than the company's 3.1% decline in U.S. same-store sales.

Services had posted quarterly increases ranging from 1.3% to 8.7% over the past year, and Best Buy has previously touted its services business as a growth vehicle in an industry where product prices fall as technology advances.

Sears declined to comment on its recent offers, and it doesn't break out results from its home services operations, which provides installation and repairs.

Profit margins on the most basic tasks, such as delivery, aren't among the highest for Best Buy's Geek Squad services unit, according to Best Buy. And the retailer doesn't offer free delivery or setup on lower-priced TVs, partly because the smaller sizes are easier for customers to handle but also because "the economics don't work for us," said Wade Bronson, Best Buy's director of investor relations.

"This isn't rolling out a Geek Squad (Volkswagen) bug to deliver a 100-pound TV," Bronson said of current delivery offers. "We view this as a promotional lever, one that right now most of our competitors can't match. What it's intended to do is eliminate a pretty significant barrier for customers interested in buying a pretty big TV."

Best Buy has said it's not discounting heavily to gain market share, and many retailers negotiate deals with suppliers to pick up some of the costs of promotional events, noted Richard Hastings, consumer strategist with Global Hunter Securities LLC.

But Pali Capital analyst Stacey Widlitz remains concerned about heavy promotions at Best Buy. The retailer also throws in free home-theater setup for certain Sony high-definition TVs, and offers no-interest financing for three years on high-def TVs, home theater and Geek Squad services totaling at least $999, she said in a note to clients Monday. Best Buy also offers no-interest financing for 18 months on purchases of at least $499.

"While things seem to improve for the discounters, BBY is maintaining its promotional pattern," Widlitz said.

Costco Wholesale Corp. (COST) last week said comparable-store sales for televisions showed mid-single-digit growth in dollars and 35% growth in units. Target Corp. (TGT), too, pointed to electronics as being stronger than average, Widlitz noted.

-By Mary Ellen Lloyd, Dow Jones Newswires; 704-948-9145; [e-mail]