Best Buy finds more inventory on hand drives sales

Discussion
Photo: Getty Images
May 30, 2018
George Anderson

Best Buy has been on a roll with a same-store sales gain of 7.1 percent in the first quarter following a nine-point comp gain during the fourth quarter. Among the keys to the consumer electronics chain’s success has been its inventory management.

Speaking on Best Buy’s earnings call with analysts last week, CFO Corie Barry applauded the company’s inventory and demand planning group for “the quality of our inventory,” which she said was reflected in the chain’s net promoter score.

Customers are consistently telling us one of the big drivers of that improved customer experience year-over-year is inventory availability both online and in stores,” said Ms. Barry. “And so, I feel very good about the targeted quality of the inventory and then also the levels in support of the business we’ve been seeing.”

Best Buy’s inventory is up about nine percent on a square foot basis year-over-year. The chain is in the midst of a multiyear effort to transform is supply chain, according to a Wall Street Journal report. While the chain’s management believes the investments being made are critical to Best Buy’s sales success, analysts are watching to see if it delivers the returns investors expect. Supply chain investments and higher fuel costs are expected to cut into profits by 25 basis points on a quarterly basis.

DISCUSSION QUESTIONS: Do you see demand planning and inventory management as a competitive advantage for Best Buy? Where do you see the biggest opportunities for retailers to improve supply chain and inventory management practices today?

Please practice The RetailWire Golden Rule when submitting your comments.
Braintrust
"Like with labor, I think the pendulum on inventory in stores got pushed way too far to 'cut, cut, cut' and needs to come back a little."
"It’s important for retailers to understand the “why” of product that’s turning over well. Is it demographic driven? Market driven? Promotion driven? "
"What’s barely present in this discussion so far is the crucial importance of managing stock levels based on forecasted store-level demand. "

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26 Comments on "Best Buy finds more inventory on hand drives sales"


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Max Goldberg
Guest

If Best Buy doesn’t have what consumers want on hand, consumers will turn to Amazon. The same is true for other retailers, whether brick and mortar or digital. Inventory management is a key factor of retail success, and a delicate balancing act between having too much or too little stock on hand.

Neil Saunders
BrainTrust

One of the great things about Best Buy is its joined-up inventory system. From a customer’s perspective, this allows stock to be checked across various stores and from the online warehouse. Generally, these checks are completely accurate.

While this system is more flexible, it requires a higher level of inventory in stores — which are now acting as fulfillment centers as well as places of direct purchase. As much as this is an investment, Best Buy seems to have committed to this in a way that other retailers (looking at you Target!) haven’t.

Despite more consumers shopping online, immediacy and the need to “have something now” are still strong drivers of satisfaction. Retailers unable to deliver on these promises find that customers simply defect elsewhere — and in an occasionally-purchased category like electronics, this can be punishing.

Bob Amster
BrainTrust

Both demand planning and inventory management are critical components of every retailer’s business (except possibly for showrooms). It is this fine balance of having sufficient assortment to avoid missed sales, and yet not so much inventory that stores look cluttered and the retailer is spending too much on product, that often goes underestimated by many retailers. It isn’t all about the shiny new technology objects. Retailers have to pay close attention to the basics first, and inventory management is one of those basics.

Phil Masiello
BrainTrust

Accurate demand planning and inventory management systems have been available to retailers for over 20 years at this point. The problem, as with every system, is execution. Most users don’t believe the data so they override the system and the system does not yield the desired result and it gets scrapped.

It sounds to me like Best Buy is finally paying attention to the data and it is yielding a positive result. Having the correct inventory in the stores is essential for growing sales. There are a lot of retailers who have a ton of inventory on display, but no one is buying it because it is the wrong inventory for their consumers.

Can this be a strength? Clearly, it can. It will also help in determining the right sized store.

Cathy Hotka
BrainTrust

Max Goldberg is right; customers are accustomed to easy availability of product, and will find the retailer that can provide it. Hubert Joly continues to find ways to keep Best Buy relevant and important in the age of Amazon. The investments that retailers make in accurate inventory planning are money well spent.

Nikki Baird
BrainTrust

Like with labor, I think the pendulum on inventory in stores got pushed way too far to “cut, cut, cut” and needs to come back a little. It’s not just about having the right products in the right stores at the right time. The idea of “fixture inventory” or that you need a base level of inventory, no matter what it is, to make the store look “stocked” is not baseless. If people see an empty store, they think “There’s nothing here for me” and won’t shop. So even if you had a perfect match between what you had in store and what you expected to sell before the next replenishment truck, it really would not be enough inventory to get consumers confident enough to shop.

So, I suppose we should give kudos to Best Buy for recognizing this, though I would say it’s more like “rediscovering a long-established retail store principle.”

Joanna Rutter
Guest
1 year 7 months ago

Totally agree! I think BOPIS changed this too. If inventory levels are listed accurately online, customers are probably more likely to make the trip to the store if they know it’s there on the shelf waiting for them.

Dick Seesel
BrainTrust

Demand planning has become more complicated with the onset of omnichannel initiatives like buy online, pickup in-store and ship from store. It makes forecasting by location more difficult if physical stores are also being used as mini-warehouses. Retailers run the risk of alienating customers who have made the effort to shop at a physical store, if they can’t find what they want in stock.

Best Buy has long been a leader in helping customers use the website to identify in-stock levels at their nearest store. But the company obviously decided that this wasn’t enough, and only a boost in stock levels would drive more sales. Retailers often get rewarded by Wall Street for driving down their comp-store inventories, but perhaps Best Buy’s results will point in a smarter direction.

Chris Petersen, PhD.
BrainTrust

Demand planning and inventory management are mission critical for EVERY retailer. It is not just raising inventory levels, but fine tuning inventory by market, by store and even at the shelf level in some cases. To be successful in inventory optimization today requires extensive data, analytics and rapid replenishment.

Supply chain investments and systems are expensive, but they can be offset by optimizing inventory for sell through and increasing inventory turns. Inventory has always been a major factor in retailer profitability. However, with all of today’s dynamics of omnichannel and click and collect, it has become even more strategic and critical to the bottom line.

A major reason customers go to stores is for immediate gratification. Retailers must find the ways to balance required inventory and generate a profitable return. Profitable inventory management of the future will be at more of a micro level and more “real-time.”

Charles Dimov
Guest

You can’t knock having the right inventory at the right time in retail. That is definitely a winning ticket. The lesson for retail is that good demand planning is one step. Second is letting your customers see the inventory. Good job Best Buy on pulling more inventory into your stores, where customers know they can drop by and probably find the electronic goods they seek.

Best Buy also does a great job of showing their inventory online and telling shoppers which stores have stock of the items they want. What Best Buy is doing today has to start becoming the norm. The next step is highlighting the number of units of an item available at each location. This can help drive demand — when a shopper knows that there are only two items left of the latest device they want. “Buy it now, before someone else snags it!”
Keep leading the new age of retail, Best Buy!

David Weinand
BrainTrust

Best Buy is in one of the few categories where online sales now exceed store sales so they know they have to meet the customer expectation of “where I want it, when I want it.” Their single view of inventory is impressive and accurate as I can attest to from this weekend’s Macbook purchase for my daughter. As more retailers like Best Buy continue to fulfill from stores, they have reason to keep more inventory on hand to meet both store and online shopper demand. This can also help alleviate the age-old challenge of balancing “safety stock” with not having enough inventory on hand to meet demand.

Jeff Sward
BrainTrust

The accountants may want to cut inventory and the buyers may want to add inventory. It’s not about cutting or adding. It’s about the right DOI number — Days of Inventory. Or WOS if you prefer — Weeks of Supply. What is the right number in-store? What is the right number in a central warehouse? What is the replenishment time from DC to store? What is the reorder time from factory to DC? This is manageable at the SKU or CC (Customer Choice) level … BY LOCATION. It’s not macro. It’s micro.

Steve Montgomery
BrainTrust

The old adage that “you can’t sell from an empty wagon” is still true today whether it’s online or in a brick-and-mortar location. Low inventory at the store level creates the perception that you don’t have items that may be in the store. An out-of-stock posting online may even be worse because alternatives are just a click away.

As more and more companies sought to lower the carrying cost of inventory they utilized just-in-time deliveries. However, without a sophisticated supply chain that too often means running out of inventory at the store level. Best Buy’s demand planning and inventory management can be a cornerstone of the return to its former glory.

Byron Kerr
BrainTrust

Demand planning and inventory management are huge competitive advantages for Best Buy. Striking a balance between being lean and carrying an ample amount of inventory is every retailer’s struggle. Best Buy’s approach to inventory has allowed a seamless store vs. online experience that lets customers get what they want when they want it (immediately or conveniently). It’s important for retailers to understand the “why” of product that’s turning over well. Is it demographic driven? Market driven? Promotion driven? Understanding the why allows retailers to make more fact-based, and less gut-based, decisions that can parallel the results Best Buy is currently experiencing.

Rich Kizer
BrainTrust

Demand planning and inventory management have been tantamount to success since the beginning of time, and are more important than ever in today’s competitive markets. As Best Buy beefs up in-store inventories and presentations, and continues to make sure those same compelling stories are told and sold on every sales channel, they will create a perception of assurance and top-of-the-mind awareness that that this is the place to learn, inquire and buy for the customer. In this “I want it right now” market, Best Buy is running a great race. Great move!

Ralph Jacobson
BrainTrust

You can’t sell it if you don’t have it. This is definitely a competitive advantage and one that can leverage the very latest tools that have proven to be lucrative for those retailers that have driven double-digit improvements in demand forecasting. This is huge.

Andrew Blatherwick
BrainTrust
It is amazing that it takes a major retailer seemingly by surprise that good inventory management has a positive effect on sales and their net promoter scores. However, what is slightly worrying is that they have increased their inventory 9 percent to enable this result. Does this mean that they had reduced inventory to such a level that it was adversely impacting sales because the service level was so poor or were they doing a poor job in the past and had the wrong inventory in each store? Inventory management systems deliver a bigger return on investment than any other IT investment and if you get the right solution it can transform a retailer’s business, yes even an efficient one. Having a modern supply chain optimization solution provides customers with high levels of satisfaction because they get the right products when they want them, with so much choice online and competitive retail a poor service level will ensure that customers vote with their feet and shop elsewhere, not just once but from then on. Congratulations… Read more »
Camille P. Schuster, PhD.
BrainTrust

The inventory management system is great but part of that advantage is that the people on the floor can check inventory status on the floor. A real-time system that all employees can access provides a clear advantage for consumers to help their decision making.

Doug Garnett
BrainTrust

It’s good to see that Best Buy understands how product and having product on hand is key to retail sales. This is a refreshing view given pundits with theories as extreme as the idea that stores should be mini-amusement parks.

I’m reminded of much of W. Edwards Deming’s writing about how metric-based management can lead to the perfectly managed company that failed.

It seems we are in a phase where intense computerization of, well, everything allows management to obsess over a tiny detail while losing track of the big picture. More retailers need to follow Best Buy’s example of ditching the micro-management in order to look at the big picture.

Peter Charness
BrainTrust

Of all the things a Retailer can spend money on, inventory never seems to make the list of capital investments. As Nikki points out there’s been a relentless 20-plus year drive to cut inventory and free up cash for other things. The balancing act is not just how much inventory a retailer has, but what risk that inventory presents in terms of the ultimate margin that can be realized as it sells out, or the opportunity and financial costs if it doesn’t sell out as expected. If a retailer’s inventory can be efficiently used across all channels then the risk of a financial loss is much less. Reducing the risk by increasing the ability to use inventory across any channel helps make that investment a better bet.

Ken Morris
BrainTrust
Ken Morris
Retail industry thought leader
1 year 7 months ago
The biggest area of opportunity for retailers to improve supply chain and inventory management — especially for higher value items — is to leverage real-time retail and RFID to improve the accuracy of inventory. The idea of real-time retail is to update all inventory from both stores and DCs in real-time and eliminate safety stock and sell to the last item. This gives a retailer an enormous advantage to eliminate fat in the supply chain and increase sales. Given how Distributed Order Management (DOM) works today, each store has a safety stock of X. Unless a store has X+ it will appear to the system as out-of-stock. This is a huge issue in making brick-and-mortar competitive with pure-play. Accurate and appropriate levels of inventory for the “right” products is definitely a competitive advantage for retailers, especially with the growth of BOPIS. It is great to see Best Buy’s impressive same-store sales increases and smart demand planning and inventory management is a contributing factor in addition to all of the other things they are doing right… Read more »
Dan Raftery
Guest

Best Buy has done many things right since the dawn of online competition, this being basic and smart. Demand planning goes beyond simply minimizing out-of-stocks, but falls short of the need to carry everything between online and in-store. BB’s products experts are a real advantage. To offer inventory they can sell, (up-sell, etc.) after advising should work. After all, the only thing that beats next day delivery is buying in the store today.

Ricardo Belmar
BrainTrust

Best Buy demonstrates the significant impact a well-managed supply chain can directly have on customer satisfaction. Especially in their product category where online sales generally outpace in-store sales, it’s critical to have the right inventory in-store so customers can get that instant gratification by buying online and picking up in-store. Every retailer can learn from Best Buy in this area!

Shelley E. Kohan
BrainTrust

Best Buy illustrates the reversal of fortune from a few years ago and part of the success in their turnaround strategy is inventory management and control of the supply chain which directly effects right product, right place, right time. However, Best Buy has also implemented additional strategies which are representative of the transformation of retail with a focus on the customer journey, continued investments in multichannel endeavors, and collaborations with business vendors.

Strategies include addressing the knowledge deficiency gap with their own associates by giving them the tools to be trusted advisors to their customers and enhancing the store environment with home theater set-ups. The company piloted an in-home advisor program, further building customer loyalty and creating an additional customer touchpoint.

The exit of larger competitors over the past few years has been a positive factor for Best Buy. Efforts moving forward will also focus around the smart store and connected home. However, all of the additional strategies are null and void without proper inventory management.

James Tenser
BrainTrust

Inventory optimization seeks a dynamic balance between forecast demand and stock on hand. Too much inventory is like cash sitting still. Too little inventory results in missed sales. Best Buy has adjusted the balance to ensure that popular items are available on the shelves, and I’m certain it has calculated the GMROII impact of the extra stock.

What’s barely present in this discussion so far is the crucial importance of managing stock levels based on forecasted store-level demand. It must, must, must be a bottom-up process, not a calculation from on high. Best Buy appears to understand this — the ability to check store item availability from its website is the proof. It makes click-and-carry a reality, and rapid access a point of differentiation versus waiting for the delivery guy.

Kenneth Leung
BrainTrust

People shop in the store looking for instant gratification. The constant cost cutting to reduce store inventories I think went too far and detracted from customer experience. You need the right amount of the right items to draw people to buy. Turning a store into a showroom doesn’t work because they can buy the item from Amazon when they go online.

wpDiscuz
Braintrust
"Like with labor, I think the pendulum on inventory in stores got pushed way too far to 'cut, cut, cut' and needs to come back a little."
"It’s important for retailers to understand the “why” of product that’s turning over well. Is it demographic driven? Market driven? Promotion driven? "
"What’s barely present in this discussion so far is the crucial importance of managing stock levels based on forecasted store-level demand. "

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