The Real Reason Why Best Buy's Sales Will Drop This Christmas

Contrary to popular belief, Amazon

isn't the only culprit.

Earlier this morning, Best Buy

announced that

. The company reported net earnings of $154 million– or $0.42 per diluted share – for its fiscal third quarter (which ended on November 26, 2011). This is compared with $217 million, or $0.54 per diluted share, for the prior-year period. “I'd like to thank our employees around the world for their tireless efforts during the third quarter and a successful kickoff to the holiday selling season,” Best Buy CEO Brian J. Dunn said in a company release. “We took actions to provide value to customers and drive our business in this competitive consumer environment. We are pleased to report positive traffic, comparable store sales growth and continued progress on our key strategic focus areas, highlighted by strong performance online.” The point that Dunn misses (which may not be lost on investors) is that “value to customers” and “positive traffic” have never been an issue for Best Buy. The company has always used its price advantages to lure customers – and it has always worked. Whether or not those consumers are actually making a purchase is a whole other story. Many within the retail sector are concerned that retailers like Best Buy, Target

and Wal-Mart

are gradually becoming

. If consumers walk into Best Buy to examine their items, test them out firsthand, and/or compare prices, the retailer doesn't gain a thing. Only when we walk out of the store with new computers, game consoles and other big electronics is Best Buy able to turn a profit. But getting consumers to make that purchase could be easier said than done. As a frequent shopper of Best Buy, I often come to the retailer for DVDs (where else can you find a Blu-ray/DVD combo of new movies for $20 or less?), memory cards ($25 for an eight-gig SanDisk

Class 6 SD card can't be beat), and other items along those lines. I've purchased larger items from Best Buy as well – typically after shopping around and carefully investigating my various choices. I don't purchase video games from Best Buy because GameStop

continues to provide a superior selection, and a superior pre-order setup. GameStop also has more midnight launches of new games. I know that when it comes to music, my purchasing habits are not the norm. Fewer and fewer people buy new CDs each year; most download from iTunes or stream from Spotify. (Many consumers also pirate their music, but that's an issue for another day.) So I cannot fault Best Buy too severely for reducing its music selection. But I have to say that it is disappointing. While there was once a time when I could find every album I wanted (even those from obscure artists) at Best Buy, I now typically walk into the store, fail to locate the CD I want, and return home to download it from iTunes. If Best Buy is lucky, I might purchase an iTunes gift card before leaving. But I imagine that the profits from an iTunes card are much lower than that of a few CDs, so I don't believe that Best Buy is making up whatever revenue it lost from the decline of music sales. This, however, is a battle all retailers are facing, hence the closure of most music-specific outlets. (Rest in peace, Tower Records!) But there is one battle Best Buy has brought onto itself that I can't quite understand: it's becoming harder and harder to find small items in the store. Perhaps this is on purpose. Maybe Best Buy is hoping that if you can't find that copy of Friends With Benefits that your sister wants stuffed in her stocking, you'll buy a GE

refrigerator instead. I call this the Bob Pinciotti Strategy. For those of you who have never seen That ‘70s Show, Bob Pinciotti (father of Donna Pinciotti) decided to keep his store, Bargain Bob's, open on Christmas Eve while his competitors remained closed. He did so because he felt that last-minute shoppers would buy a large appliance in the absence of something else. Consequently, Bargain Bob's never went public. In fact, the store closed a couple seasons later. Will Best Buy face the same fate? Probably not. But investors who use

will surely be the ones who are first alerted to Best Buy's future earnings, good or bad. Whatever fate befalls Best Buy, I have to say that I am a little baffled by the DVD layout and the recent restructuring of its stores. Why are iPod docks now in the section with GPS devices and equipment? It's not a huge deal, but it is a little odd. And it makes me wonder how many customers have walked into Best Buy, searched for something, failed to find what they were looking for, and left. If I really want an item, I will typically ask an employee where I can find it. Best Buy employees have always been helpful to me in this regard. But there have been times when I was only moderately interested in an item, couldn't find it, and didn't bother to ask for help because I either didn't feel like taking the time to do so, or could not immediately find an employee that wasn't already with a customer. These may sound like trivial elements. In the grand scheme of things, they may not be something that Best Buy should worry about. But if tweaking their stores to make items easier to find could increase sales by just 1%, wouldn't it be worth the effort?

Whatever happens to the future of Best Buy, the company may have a

. Investors who are cautious of its future should consider the following:

Investors who anticipate a grim future for Best Buy can still make a move within their portfolio, including: