Costco Just Can’t Beat Best Buy In Electronics, Stock Price Headed South

Fighting an uphill battle in electronics

Recent reports suggest that retailers like Wal-Mart and Amazon are taking some of Best Buy’s consumer electronics market share with the help of their promotional discounts and offers as well as effective online sales strategies. For additional details you can see our recently published article Can Best Buy Correct Product Missteps?

Here we take one step further and examine whether warehouse clubs like Costco could also ride this bandwagon and grab market share in consumer electronics.

Costco traditionally competes with warehouse club operators including BJ’s Wholesale Club and Sam’s Club, in addition to large retailers. We maintain a price estimate of $49.76 for Costco, well below current market value.

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Costco Can Leverage Discounting Power

Costco offers bulk purchase of a variety of heavily discounted merchandise as well as a limited selections of branded goods. The retailer is able to provide deep discounts due to higher product turn-over from bulk buyers and business customers. Similar to Wal-Mart and Amazon, Costco could also leverage its discounting power to lure potential electronics customers that might otherwise go to specialty retailers like Best Buy.

Best Buy gains its edge by providing trusted service support and frequently being the first to display the latest electronics and gadgets. However, recent reports indicate that consumers might be tentative to adopt some of the latest technologies, instead opting for more established products. For example, consumers are commonly choosing established flat panel TV’s over the new 3D-TV technology. This trend could open a window of opportunity for Cotsco, as the company is able to utilize its personalized discount scheme to drive sales (particularly during holiday shopping). (See our previous article on Sam’s Club)

Stock Impact from Improved Revenue per Square Foot

Costco’s revenue per square foot stands much higher than that of Wal-Mart, despite selling similar merchandise. However, Costco still lags slightly behind Best Buy on this metric. We estimate that average revenue per square foot for Costco stood at around $814 for 2009 compared to $908 for Best Buy’s US stores.

If Costco is able to gain electronics share from Best Buy, sparking RPSF upside closer to the retailer’s levels, what impact might it have on Costco’s stock? We estimate that this scenario could generate 6% upside to our Costco price estimate, which at $49.76 remains well below market value.

Drag the trend-line in the chart below to see the impact of various US revenue per square foot trends on Costco’s stock value. We estimate that Costco generates roughly 43% of its stock value from merchandise sales in the US, with another 19% added by international merchandise.

But Costco Faces an Uphill Battle for Market Share

However, this potential upside is mitigated by the nature of Costco’s customer base, as well as its limited brand selection. Customers that are not currently Costco members might choose Wal-Mart when looking for a one-time discount, rather than bear membership fees. Additionally, many of Costco’s customers are small business owners that might not be inclined to purchase new gadgets. Hence the possibility exists that the electronics market share opportunity could quickly be gobbled up by Wal-Mart and Amazon, who maintain a clear head start over Costco. In order to successfully grab market share, Costco must entice both its existing customer base as well as customers who might initially be looking for a deep discount on a one-time purchase.

You can see the complete $49.76 Trefis price estimate for Costco’s stock here.

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De Villiers, Kallis lift South Africa

South African batsman Jacques Kallis is bowled out by bowler Tanveer Ahmed (L) on the first day of the second Test match between South Africa and Pakistan. PHOTO: AFP

ABU DHABI:?AB de Villiers and Jacques Kallis rescued South Africa with sparkling hundreds to guide them to 311-5 at close on the first day of the second Test against Pakistan on Saturday.

De Villiers was unbeaten on 120 for his 11th hundred while Kallis notched 105 for his 37th, as the duo added 179 runs for the fourth wicket after debutant paceman Tanveer Ahmed shook South Africa with three early wickets.

Mark Boucher was unbeaten on 26 at stumps.

Ahmed (4-67) had justified Pakistan captain Misbha-ul-Haq’s decision to bowl first with South Africa tottering at 33-3 but Kallis and De Villiers thwarted any attempts in the next two sessions.

Kallis, 34, was more dominant during the restorative stand, hitting 12 boundaries and three towering sixes during his 147-ball knock before he played on to Ahmed in the first over after tea.

Kallis is behind India’s Sachin Tendulkar (49) and Australia’s Ricky Ponting (39) in the all-time Test century-makers list.

De Villiers, 26, ably supported his senior partner as Pakistan failed to get the duo in trouble.

De Villiers has so far hit eleven fours and a six during his attractive 231-ball knock.

In the morning, Ahmed struck three crucial blows in the morning session, removing Alviro Petersen (two) off the third ball of his Test career and then claiming Hashim Amla (four) off his eighth and Graeme Smith (10) in his sixth over, claiming three wickets off 28 balls.

Petersen edged Ahmed to first slip where Misbah took a well-judged catch before Amla was adjudged caught behind by Sri Lankan umpire Asoka de Silva, despite television replays showing that the ball brushed the batsman’s pad.

Smith, who took 20 balls to open his account, edged Ahmed to wicket-keeper to leave the fight to Kallis and De Villiers.

In-form Kallis, who hit 73 and 135 not out in the drawn first Test in Dubai, took three off paceman Umar Gul before he ran for a single off spinner Abdul Rehman in the next over to complete his hundred off 135 deliveries — his fifth this year.

The Kallis-De Villiers stand is a new record for the fourth wicket partnership against Pakistan, erasing the previous best of 119, involving Kallis and Amla at Centurion in 2007.

After Kallis was dismissed in the first over after tea, De Villiers added another 56 for the fifth wicket with Ashwell Prince (32).

Pakistan took the second new ball after 82 overs with the South African score 285-5, but De Villiers and Boucher reamined firm.

Pakistan, who lost paceman Wahab Riaz because of a side strain, were forced to make three changes. They dropped Umar Akmal — penalised for his rash shot in the first Test — along with off-spinner Saeed Ajmal.

Ahmed and Asad Shafiq, also making his debut, and Mohammad Sami were brought in, while South Africa chose the same first Test eleven.

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Child undernourishment ‘alarming’ in South Asia: report

World map shows regional hunger index. India and Bangladesh are ranked as 'alarming' while Pakistan is ranked as 'serious'. SOURCE: IFPRI.ORG

KARACHI:?With the deadline to achieve Millennium Development Goals just five years away, 2010 Global Hunger Index report prepared by International Food Policy Research Institute IFPRI paints a gloomy picture of South Asia and Sub-Saharan Africa.

Some 29 countries in these regions, it says, have levels of hunger that are alarming or extremely alarming.

Regional statistics

Among South Asian countries, India (67) was ranked lower than Pakistan (52) on index and only Bangladesh (68) was ranked below India.

Bangladesh, India & Timor-Leste have highest prevalence of underweight children, at around 40 per cent in Asia.

Global hunger index was calculated for 122 countries on the basis of child mortality rate, prevalence of underweight children and proportion of undernourished people in a country. Data on these parameters were sourced from Food & Agriculture Organization FAO, United Nations Children’s Fund UNICEF & World Health Organization WHO.

Recommendations

The report recommends that interventions, using evidence-based and locally appropriate approaches, are required from conception stage up to age of two to bring down hunger levels. These include improving nutrition of pregnant and lactating women, promoting sound breastfeeding practices, improving hygiene, sanitation, giving essential vitamin supplements where necessary, promoting universal salt iodisation, immunisation.

The report says governments should adopt policies that deal with underlying causes of undernutrition like food insecurity, lack of access to health services, poor caring, feeding practices, which are exacerbated by poverty, gender inequity. But in India, where poverty can be said to be man-made feature, undernutrition is cause and not outcome of inability of people to make themselves food secure or have access to health services.

Few case studies mentioned in report express clearly helplessness of people to combat hunger in absence of resources. It describes hunger as discomfort associated with lack of food.

Undernutrition signifies deficiencies in protein, energy, essential vitamins, minerals and says it is caused by inadequate intake of food – either in quantity or quality. Nations in South Asia, Sub-Saharan Africa will fall not in overnutrition category but in “hungry” and, to an extent, “undernutrition” categories.

Download the complete report in PDF format here.

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South Africa win toss, decide to bat

South African batsman Hashim Amla plays a stroke during the fourth one-day international match between Pakistan and South Africa at the Dubai Cricket Stadium on November 5, 2010. PHOTO: AFP

DUBAI:?Fit-again South African captain Graeme Smith won the toss and decided to bat in the fourth day-night international match on Friday.

South Africa, who lead the five-match series 2-1, were lucky to have Smith back after he recovered from a hand injury which forced him to miss the last two matches.?They were also boosted by the return of frontline paceman Dale Steyn who missed both the Twenty20 and the first three one-day matches because of a head injury sustained last month.

Paceman Wayne Parnel also returns to the team as Albie Morkel, Lonwabo Tsotsobe and Rusty Theron were left out.

Pakistan left out off-spinner Saeed Ajmal and brought in left-arm slow bowler Abdul Rehman as the only change in the side from the last match.

South Africa won the first match by eight wickets before Pakistan levelled the series with a narrow one-wicket win in the second — both matches played in Abu Dhabi last week. South Africa won the third match by two runs in Dubai on Tuesday. The five-match one-day series will be followed by two Tests.

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