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The Big Box Stores' Last Stand

Best Buy has never really understood the internet. And now it's sort of dying.

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Best Buy CEO Brian Dunn has been obliterated. There are the negative numbers reasons, like a $1.7 billion loss last quarter, stocks worth less than half of what they were five years ago, and the fact Best Buy's going to close 50 of its 1450 stores this year. But the distilled reason: It's 2012, and Best Buy still doesn't get the internet.

Tragically, fundamentally so: Its ineptitude destroyed Christmas for customers who bought gifts from on Black Friday. It couldn't fulfill orders a month after people made them. A retailer that supposedly specializes in doing this very thing, selling tons of electronics to people at Christmas. And its website was a tragicomic disaster until fairly recently.

There is no way for giant corporations like overly generic-but-specialized big box retailers, particularly ones that trade in technology, to exist in this world if they do not understand the internet, a force practically designed to destroy them. Understanding the internet means embracing creative destruction. The Netflix maneuver: If your physical business is going to be crushed into bits, be the one crushing it. Netflix — which already was an internet business! — knows the future is streaming, not plastic discs — to the point it tried that whole Qwikster mess. Barnes & Noble is betting its future on the Nook, even as ebooks slowly extinguish its business of selling physical books. (Seriously, just walk into a Barnes & Noble. You will be assaulted on all sides by Nook displays.)

The thing is, there isn't a big box electronics retailer around that gets this. Best Buy was the one that supposedly won. Just flick through this list of dead or zombified electronics retailers (Circuit City! CompUSA!). Best Buy outlasted all of them. Meanwhile, Radio Shack is struggling. And while Fry's is private, Forbes reported last year that its revenues from dropped from $2.4 billion in 2008 to $2 billion in 2011. In the same time period, privately owned's revenues have grown from $2.10 billion in 2008 to $2.5 billion in 2011, passing Fry's on the way. (Related: Have you seen Fry's website? The original tech bubble called and it wanted its e-commerce back.)

The exception is GameStop, which made nearly $2.7 billion in gross profit last year. But as Penny Arcade Report explains, used videogames make up around 46 percent of GameStop's gross profits (vs. close to 36 percent percent from new video games). And that's going away in the not-too-distant future, thanks to digital distribution and the gaming's industry intense hatred of the used games trade, which they see as stealing money from their pockets. The rumor that the next consoles from Microsoft and Sony would make it basically impossible to buy used games has been called "the equivalent of dropping a nuclear bomb on GameStop." So it's already rethinking its future and how to work with digital, not against it.

If Best Buy's going to avoid becoming the next Circuit City, an empty shell in a strip mall next to an overflowing Super Walmart where people stream out carrying giant watermelons, armfuls of deodorant and supercheap electronics, that's exactly what it needs to do. Or maybe should've done: Become the best electronics retailer on the internet. I hope their next guy gets that.

Update: It wasn't Best Buy's sagging fortunes that led to Dunn leaving! The official reason now is:

"Certain issues were brought to the board's attention regarding Mr. Dunn's personal conduct, unrelated to the company's operations or financial controls, and an audit committee investigation was initiated. Prior to the completion of the investigation, Mr. Dunn chose to resign."