Photo: Best Buy
When will Best Buy’s sales recover?
Best Buy last week forecast sales would decline three-to-six percent in 2023 amid macroeconomic pressures. The chain reported a 10.3 decline in 2022.
The declines followed boom years in 2020 and 2021 as homes underwent tech upgrades.
CEO Corie Barry, speaking on an analyst call, said that Best Buy sees calendar 2023 representing “the bottom for the decline in tech demand” before the industry returns to growth in 2024.
Among the factors driving the return to growth:
- Incremental pandemic purchases: Best Buy “continues to see evidence that much of the growth during the pandemic was incremental, creating a larger install base of technology products in consumers’ homes,” said Ms. Barry. On average, U.S. households have twice as many connected devices than in 2019, with more tech purchases “need-based than want-based.”
- Upgrade time: The upgrade/replacement cycle for early-pandemic purchases is expected to start later this year and grow in 2024 and 2025. Customers’ tech is historically upgraded or replaced every three to seven years.
- Innovation’s return: Innovation was paused mainly in favor of production during the pandemic, but cloud, augmented reality and expanded broadband internet access are among the factors expected to inspire R&D investments. Ms. Barry said, “We believe there will be a desire from our vendor partners to stimulate those replacement cycles or build completely new categories going forward.”
- Emerging gadgets: Wellness technology, personal electric transportation, outdoor living and electric car charging are some emerging opportunities.
In January, The NPD Group predicted that consumer electronics would see a five percent industry decline in 2023 and flat growth in 2024 before returning to growth in 2025 with an assist from the replacement cycle.
In a recent column on nasdaq.com, Steve Koenig, VP, research for the CTA (Consumer Technology Association), wrote that technology innovation accelerates during downturns and can drive overall productivity.
“A new industrial revolution is nigh,” Mr. Koenig wrote. “The increasing capabilities of 5G wireless combined with AI, robotics, cloud computing and other technologies (like advanced sensors and semiconductors) will soon empower enterprises to jumpstart productivity through automation and hasten the pace toward economic prosperity.”
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Best Buy Reports Fourth Quarter Results – Best Buy
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Best Buy Co Inc (BBY) Q4 2023 Earnings Call Transcript - AlphaStreet
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Best Buy signals more pain for electronics retailers with muted profit forecast - Reuters
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Best Buy tops holiday-quarter expectations but warns of further sales declines in the coming year - CNBC
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US Consumer Technology Sales Expected to Decline in the Near-Term, Returning to Growth in 2025 - The NPD Group
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2023 Tech Trends Detailed at CES; Revenue to Hit $485B – IOT World Today
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Tech Savvy: CES unveils tech trends to watch – Brainerd Dispatch
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A Slow Landing for the U.S. Economy - Nasdaq
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5G Enterprise and the Industrial IoT Revolution - Consumer Technology Association
Discussion Questions
DISCUSSION QUESTIONS: Do you see consumer electronics growth returning in 2023, 2024 or 2025? How confident are you that 5G wireless, augmented reality, artificial intelligence, cloud or other underlying technology will drive an extended growth spurt for consumer electronics in the years ahead?
Poll
Loading …BrainTrust
Neil Saunders
Managing Director, GlobalData
Tara Kirkpatrick
Mobile Trends Analyst, Apptopia
Best Buy is now trading below 2018 and 2019 levels, so performance in electronics is more than about a simple reset after a couple of boom years. At present there are two main factors dragging down the market: constrained consumers who are not willing to fork out money for expensive items, and a relatively weak release cycle of new technology. I agree that things will pick up eventually, but I think views on the upgrade cycle might be somewhat optimistic if the consumer is still under pressure. In our data we are already seeing people make do for longer and turning to having items like appliances repaired rather than buying new. Much depends on the trajectory of the economy.
I’m not even slightly worried about the health of Best Buy’s business. “…U.S. households have twice as many connected devices than in 2019.” That’s a staggering statement. So of course there was a slowdown after that kind of surge. I will always admire Best Buy for the speed and quality and efficiency of their BOPIS response during the pandemic. And when the need/want cycle somewhat normalizes going forward Best Buy will still be one of the primary go-to retailers for consumer electronics.
This is the perfect case where we should look at statistics over a longer period than a quarter or even a year. Unsurprisingly, the pandemic years were boom years for electronics as more of us stayed home to work or just stayed home and consumer need for technology generated great numbers. Today we are looking at the result of this forward buying.
It is logical to assume electronics sales will return to the longer-term trend line within the next year or two.
I’ll agree with the experts – 2023 will be a tough year. The other issue is that advancements in big items like TVs and computers are incremental at best and the days of high-end (e.g. expensive) entertainment systems have been replaced by the convenience of portable speakers and a phone — so the need to upgrade is not pulling people in. The fully connected home has also not reached the potential many touted it as having. I think the industry needs to find the next big thing — maybe AR/AI but that is 2025 at best.
I agree that Best Buy will experience a leaner 2023 and perhaps a leaner first half of 2024 but then should pick up, assuming inflation has been tamed and interest rates start to trend downward. If so, consumers will be much more willing to fork out extra dollars for replacements, upgrades and new 5G and AI innovative products that will be much more mature in 2024-2025.
Something is missing from the list — well-trained employees. About a year ago I went to Best Buy looking for a printer. After hunting down an employee who was not just chatting with another employee and ignoring customers, and interrupting a blue shirt from his conversation with another blue shirt, he half-heartedly talked with me, told me nothing I did not know, told me the item I wanted was sold out and he could not give me an alternative, and then he walked away. I decided that there would have to be an item I really needed that only Best Buy carried, or that Best Buy offered at a significantly low price, before I would go back.
Yes people are not ready for upgrades and yes people are waiting for new useful tech products, but employee training needs an upgrade as well.
Well, it won’t be this year and it may not be next year either. The COVID-19 “bull whip” effect is going to take time to play out. I’m very confident that 5G, wireless, AR, VR, MR, AI, ML and the rest of the technology alphabet will drive extended growth, but those technologies first need to mature, come down in price, and figure out a way of addressing a clear consumer need.
Agreed. People are holding on to their money and electronics are the first buys that get chopped. Best Buy will have to pivot again and rethink their stores and how they can serve their customers during this time.
It is more likely to be in 2025, as consumers will max out the life of their electronics during times of economic uncertainty. The other headwind impacting Best Buy is its retail store format overhaul and omnichannel progress. According to its earnings reports, it has cut 10,000 square feet in average store size over the last 10 years and continues testing small store formats and — as RetailWire wrote in December — a digital clientele within one of its warehouses. So Best Buy is on the right track and reports progress in digital sales (33 percent of our domestic revenue compared to 19 percent in fiscal 2020). But it’s not fast or aggressive enough to improve in the next two years at this pace. In Apptopia, we can see app growth in 2022 lagged 2021, which represents opportunity left on the table, as all top performing brick-and-mortar stores were able to grow apps YoY in 2022.
Maybe … maybe not. Mr. Koenig’s booster laden paragraph lays out some possibilities, but they’re by no means certain to lead to a sales blitz. A.I. — 2023’s version of the flying car manis — and the Cloud, for example, are mostly touted in connection with business. The helpfulness of this for BestBuy (they’re mostly consumer sales … right?) isn’t immediately apparent.
Consumer electronics is cyclical, so it’s foolish to expect retailers to have consistent year-over-year sales growth. Given the current economic conditions and emerging tech development and adoption rates, I expect sales to start to grow mid-2024.
In the meantime, BBY would be well served to continue its virtual showroom initiative to engage and educate customers, and to skill-up team members so they are ready for the next tech wave.
“The bottom of the decline.” That is really inspirational. The BBY concept is not all about electronics. There are so many categories or sectors represented in the store that as a big box there are likewise many reasons to shop. I love BBY. I’ve been a Reward Zone member since inception! What needs to be addressed is in no particular order: store experience, merchandise display, benefits that recognize customer value and drive lifetime value, personalization from every angle of service, selection, access, communication and more.
Blame the macro. Or the weather. Or the manufacturers. Other than a possibility that BBY has the item I want in stock, how is it a better experience than simply shopping online, at Costco or WMT or elsewhere where there is a better value proposition? While analysts might give companies like BBY a pass due to macro, it never ceases to amaze me that retail leaders are glad to blame anything other than their own mistakes. Best Buy moving away from omni-tender loyalty is going to cost them, regardless of the macro factors.
A few years ago, mobile phone retail was one of the fastest growing areas in terms of physical stores. A key reason for this was that consumers wanted assistance setting the product up and learning how to use it.
The reality is that as consumer electronics products become more complex and enter new areas that consumers are unfamiliar with the demand for help in a physical store will increase. Here the value of expertise becomes key — offering a huge opportunity for Best Buy and others. Again however the rules of physical retail remain – key being that physical retail is not dead, boring retail is!