Photo: Best Buy
Best Buy CEO expects headwinds but not a ‘full recession’ ahead
Best Buy CEO Corie Barry is well aware of the challenges the consumer electronics chain faces in the current economic environment. She’s also confident that the steps the retailer is taking to get closer to its customers will lead to long-term success.
The retailer this week reported that its first-quarter year-over-year sales were down eight percent compared to a pandemic and federal stimulus-driven gain of more than 37 percent in 2021.
Ms. Barrie, speaking this week on an earnings call with analysts, assessed the short-term challenges faced by Best Buy and its prospects.
“The last two years have clearly underscored the importance of tech in people’s lives. So, I think it’s important for us to have that as a backdrop,” said Ms. Barrie. Best Buy, she said, expects “a softer environment” in 2022 but does not see a “full recession” as a fait accompli.
Ms. Barrie pointed to a lot of first-quarter positives that Best Buy plans to continue building on.
“We grew our Totaltech membership, increased momentum in our health business, launched new product categories and reached our fastest ever Q1 average online sales delivery speed,” she said.
Best Buy’s CEO said that omnichannel initiatives and service levels continue to set the company apart in the minds of consumers.
“While customers have returned to physical stores to see and touch products and get advice, our digital engagement with customers remains very high,” she said. “Our online sales as a percentage of domestic sales are 31 percent, still twice as high as pre-pandemic levels and revenue from virtual phone and chat interactions continues to increase rapidly.”
Ms. Barrie said the chain has expanded engagement with customers in their homes with installations and consultations “up significantly.”
Best Buy earned its “highest ever” net promoter score during the quarter from customers making in-store purchases and taking advantage of store-based services.
The retailer has also navigated supply chain challenges that have left many others reeling.
“We have employed a portfolio approach as it relates to carriers, transportation partners and parcel delivery partners. And we have built deep relationships across our supply chain, including port carriers and deconsolidation operations,” said Ms. Barrie.
The retailer has “strategically leveraged” over-the-road and rail to move product quickly and to the right destinations.
“All of this,” Ms. Barrie said, “has helped us to drive capacity, avoid large-scale disruption and mitigate cost increases.”
Discussion Questions
DISCUSSION QUESTIONS: Do you think Corie Barrie is clear-eyed about the challenges and opportunities for Best Buy over the near and longer term, or do you expect a recession to darken the horizon? Where do you see the biggest opportunities for the chain to continue growing?
Poll
Loading …BrainTrust
Jeff Sward
Founding Partner, Merchandising Metrics
Mohamed Amer, PhD
Independent Board Member, Investor and Startup Advisor
Best Buy benefited greatly from the massive move to work from home that was created by the pandemic. Best Buy, like most other retailers, faces a series of macroeconomic and supply chain challenges that will likely persist. But while these challenges are real, I don’t think Corie Barrie’s cautiously optimistic views are misplaced. Technology is at the center of many people’s lives, and so demand for the products and services Best Buy offers will continue.
If the recession does take place, and consumers eat out less and shop for clothes less, they may spend more time at home. Typically that would bode well for the consumer electronics segment, as it did during the pandemic. But electronics products work and last for a long time, so there will be less of a need for new purchases of such products in a recession. It will be about how to squeeze out one more discretionary impulse sale.
I do think Best Buy, under Barry’s leadership (and Joly’s before her) has made some really strategic moves to position Best Buy for the future, especially in the area of digital sales and localized fulfillment. I am not as optimistic as she is on the effects of an economic downturn on Best Buy’s business. The lift they enjoyed as Americans outfitted home offices is gone. As budgets tighten and inflation continues to impact consumer buying power, and consumers perception of their economic health, I would expect a slowing in demand for new phones, new computers and all the other discretionary items that Best Buy offers.
I do think they are much better positioned to absorb volatility than they have been in the past, and I do expect that they will continue to be successful. However sustaining growth will be a challenge until consumer confidence returns.
Given the lift that Best Buy experienced during the pandemic, they may indeed experience a negative comp along the way. That’s not a recession. That’s the pendulum settling back into a somewhat normalized position. Sounds like she chose her words very carefully. Nothing casual or breezy about her comments. I have no problem with her looking on the optimistic side of a rough road given what Best Buy has built the last several years.
Under Corie Barry’s leadership, Best Buy is well-positioned to ride the economic downturns, the inflationary period, and global supply chain disruptions with a customer and digital-first go-to-market strategy. Best Buy’s investments over the past decade to compete in the age of Amazon and Walmart are paying off dividends and will help the electronics retailer ride out the storm.
With its same-day store fulfillment capabilities, agile supply chain network, and customer-first shipping options, Best Buy has become a force to be reckoned with in the digital sales space. In addition, the in-store experience has been enhanced so that customers can have a satisfying experience and engage with specialists on the sales floor.
Best Buy may face some challenges, as will all of retail. However they are built for this moment.
Retailers who have a tough quarter after years of successful performance don’t turn into idiots overnight. Best Buy is an example of a retailer that has made a lot of smart strategic choices over the past several years; these decisions positioned it well for the work-from-home and streaming phenomena of the past two years.
Inflation, supply chain problems and the return to the office are indeed headwinds for Best Buy but it continues to be well positioned based on its own internal strengths.
This is a realistic assessment. Results from retailers are choppy but they are not terrible, and a lot of the churn is caused by a reversion to more normalized spending habits. If you look at Best Buy’s first quarter results, compared to the same period in pre-pandemic 2019, revenue is up 16.5 percent and net income is 28.7 percent larger. That’s far from being a disaster. All that said, there are a lot of warning signs flashing in the consumer economy and if inflation persists we could see a lot more economic turbulence.
Best Buy has certainly set themselves up for success throughout the pandemic. However it’s fair to assume that the mad dash consumers went through in 2020 and 2021 to buy electronics is unlikely to reach those same heights in 2022. Most of these products are long-term purchases and not items that consumers replace any more frequently than every few years. That said, Best Buy has done well positioning their services and product accessory offerings to maintain the customer relationship as the go-to store for consumers’ needs in these product categories. There may be a soft quarter ahead for them, but that’s not an indicator of recession or a downturn for their business – it’s just facing a comp reality that’s challenging when you’re comparing it to such a strong, and fairly artificial spike in sales. Corie Barry is clearly planning for the long-term and I expect Best Buy will weather any potential economic storm well and come out OK on the other side. Is she being overly optimistic? Possibly, but not so much that it’s likely to be a detriment to their performance or how consumers perceive them.
You know what is missing in all of these comments? That the customer is KING and we are focused on delighting each and every customer every business day. Fooling around with services vs. focusing on delighting the customer in-store and online is a better approach to business success regardless of economic conditions. Subscription services, in-home consultations (how many, how often … suspect a minor component), healthcare (ugh) really and why?
Get to the basics of what the brand stands for. Why do shoppers go to Best Buy? For depth of merchandise in key categories — TV, stereo components, car audio, appliances and phones — all of which I’ve purchased since becoming a Reward Zone member when first introduced two decades ago. The current My Best Buy loyalty program is a shell of its former self. The value proposition at 1% for white label (use any form of tender) is useless. The benefit to having their private label card or VISA gives the cardholder options — get rewarded or opt for interest free payment terms with the interest at 25.99%! In three words, I’m not buying.
Best Buy CEO Corie Barry has done an excellent job preparing the retailer for the turbulent economic times. The supply chain risk has been identified and mitigated. The net promoter score is a solid positive for the company, as are their online sales and the expanded assortment range. Ms. Barry has developed a solid growth strategy for the economic headwinds ahead. Whether she calls it a soft second half or a full recession is less critical, it’s having prepared with an anticipatory mindset. The macro-environment doesn’t consider the desires of CEOs, so companies prepare for the worst and hope for the best.
No (particular) offense to Ms. Barrie, but a corporate executive’s focus is inevitably on their own little slice of the world, so I’m not going to put much faith on their prediction(s) of macro events. And in this particular case, I don’t really see exactly why she thinks this.