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Best Buy to Silicon Valley: Please innovate more!

May 23, 2014: 9:17 AM ET

Best Buy

Best Buy's rehabilitation efforts have run into a formidable challenge: A shortage of sexy new products to breathe life into sagging sales.

Retailers are having enough trouble luring customers into their cavernous stores, especially customers who want to buy and not just play with toys they can purchase online for cheaper.

But Best Buy (BBY) blamed its latest sales drop on an overall "lack of innovation" hitting the consumer electronics industry. As much as this may sound like the old "blame it on the weather" excuse, observers say the absence of big-time gadgets to create buzz is a legitimate headwind.

"It is very believable. There really hasn't been that 'wow' product within the consumer electronics industry within the last six or eight months," said Brian Sozzi, CEO of Belus Capital Advisors.

The marquee product -- sophisticated TVs -- remain too pricey for most consumers, and phones and computers just haven't had a slam dunk winner lately.

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Without a major iPhone debut to drive sales, Best Buy said it experienced "ongoing softness" in the mobile phone categories as "consumers eagerly await highly-anticipated product launches."

The company warned it expects comparable sales to contract modestly in the second and third quarters "absent any major product launches."

To further drive this message to Silicon Valley home, Best Buy mentioned the word "innovation" 10 times during its conference call with analysts.

"We need some new excitement in those categories," Best Buy CEO Hubert Joly told analysts during the call.

Of course, Best Buy isn't alone.

Sears Holdings (SHLD) said its domestic same-store sales would have climbed 0.8% last quarter instead of 0.2% if it excluded the "poor performance" of its consumer electronics business.

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During its call with analysts, Sears CEO Edward Lampert said the consumer electronics business was the biggest negative driver to sales at both Sears and Kmart.

One area of innovation has been game consoles: Sony's (SNE) Playstation 4 and Microsoft's (MSFT) Xbox One debuted late last year.

However, David Magee, a SunTrust analyst who covers Best Buy, notes these are low-margin devices and many of the more profitable games have not hit the shelves yet.

"The real money is made down the road with the software titles," said Magee.

The next-generation of high-definition TVs developed by Sony, Samsung and Toshiba offer compelling technology, but at sky-high prices.

"The consumer doesn't see the value in trading up," said Sozzi, noting many Americans have bought expensive new TVs in the past few years.

Both Best Buy and Sears signaled a desire to combat the innovation drought by focusing on appliance, auto and wearable fitness products related to the "connected home."

While it seems smart to shift attention to these next-generation devices, it's going to take considerable time before these products are real growth drivers and can make up for fewer sales of $1,500 TVs.

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