Source: Facebook | Best Buy
Is Best Buy Built to Last?
Best Buy’s comps were down 10.1 percent in the first quarter, but CEO Corie Barry is confident that the consumer electronics chain will turn in better numbers as the year progresses.
The retailer expects its annual same-store sales to fall between three and six percent over last year. That’s not great news, but if the first quarter is an indicator, Best Buy will finish the year with respectable earnings. The chain posted earnings per share of $1.11, down from $1.49 in 2022.
Ms. Barry, on a call with analysts, said that Best Buy is seeing consumers trade down and the chain continues to emphasize personal service while adjusting its merchandising and sales promotion mix to address changing purchasing patterns.
“Our focus on being there for our customers with expertise and support was highlighted by material improvements in satisfaction scores for our in-home services and delivery and record scores in remote support, in-home repair, store care, and Best Buy Total Tech call center experiences, all key differentiators for us,” Ms. Barry said.
Continuing declines in the computing, home theater and appliance categories were a drag on Best Buy’s revenues. The chain has picked up its promotional activity in response. Ms. Barry said promotions “are now fully normalized to pre-pandemic levels from both the percent of products being promoted and the depth of promotions.”
Best Buy’s CEO said the company’s inventory management discipline will help it remain profitable and simultaneously serve its customers’ needs.
“Our inventory at the end of the quarter was down 17 percent compared to last year as we lapped last year’s elevated levels. The team continues to manage inventory tightly, targeting approximately 64 days of supply,” she said.“We expect that our inventory levels will continue to normalize and year-over-year variances will more closely match our sales performance as we move through the year.”
The chain sees its stores as a strength.
“In the first quarter, digital sales comprised 31 percent of our domestic revenue, very similar to the last two years and twice as high as pre-pandemic,” said Ms. Barry. “Our buy online, pickup in-store percent of sales was also very consistent at just over 40 percent. Considering the speed of our delivery, with almost 60 percent of packages delivered within two days, we believe the consistency of our high in-store pickup by our customers really underscores the importance and convenience of our stores.”
Discussion Questions
DISCUSSION QUESTIONS: How effectively has Best Buy responded to changes in consumer buying behavior over the past year? Do you share the retailer’s expectations that business will improve in the coming quarters of the current fiscal year?
Poll
Loading …BrainTrust
Nicola Kinsella
SVP Global Marketing, Fluent Commerce
Mohamed Amer, PhD
Independent Board Member, Investor and Startup Advisor
Everything comes in cycles, and this is a conversation the industry has had about Best Buy at least a couple of times before. And each time, they have shown the adaptability and resiliency to address the shifts in consumer habits and maintain both relevancy and profitability. The decline in the mentioned categories were anticipated and Best Buy has continued its pivot towards services and more relevant product sets. I expect appliances to pick back up once inflation gets under control. The statements that make me feel the most positive were the ones about their inventory levels and their promotional levels. They are making the right decisions to address their key economic drivers, and I expect their annual numbers at the end of this fiscal year to meet their expectations.
Best Buy has continued to offer more and better services for its customers that will help retain customers and increase satisfaction. Some of Best Buy’s challenges in the coming quarters may be out of their control. As the economy is in a precarious state, an economic downturn will create additional pressures on Best Buy’s sales performance. It is good to hear that they have improved their inventory management position which will help profit margins, but it won’t help generate revenues.
A lot of pandemic related trends, from work-from-home to streaming, benefitted Best Buy and it’s now going through an expected hangover. Until there is a new breakthrough tech product category driving store traffic, the company is smart to focus on execution — service, online shopping and the like.
I see a continued path of success for Best Buy, moderated by macro-economic factors. As consumers pull back spending heading into a likely recession, I imagine this will impact their comps, but overall their investments in technology and specifically their curbside/BOPIS capability, in addition to their moderate and intentional store count growth, will signal to shareholders they are in it for the long haul. Just like they were ahead of the BOPIS/Curbside capability and Geek Squad, I also think they continue to remain innovative for consumer needs.
Best Buy responded beautifully during the pandemic. They experienced a surge of business as people scramble to adapt to WFH situations. That they comped down from that surge is no surprise. I have to believe that BB won over a lot of new customers as the go-to retailer for home electronics and appliances. Those customers will fuel growth in the coming years. As will the Geek Squad. Life is going to get even more digital and tech driven, not less. BB is in a great position to be the go-to retailer to service that lifestyle evolution.
Best Buy is a category killer and that alone puts it in a precarious position. Amazon, Walmart, and any number of online marketplaces can undercut Best Buy at will. Best Buy seems all too aware of this as it has been scrambling to diversify into new categories and services (healthcare anyone?). Ms. Barry has done an admirable job of attempting to right the ship but Best Buy’s new offerings will need to gain traction quickly to ensure long-term success.
They are the last man standing in the nationwide consumer electronics category – they managed the pandemic well, and their service levels continue to impress. Interestingly, they are one of the few categories where inflation hasn’t had much of an effect. Consumers can get better TVs cheaper than 24 months ago. Improvements they will see will be in volume vs inflation-driven top line. As inflation hopefully wanes, they should stand to benefit.
Best Buy is focused on the right strategies and has shifted their mix of business to adapt to a changing consumer landscape. I really like Ms. Barry’s focus on home health and in-home tech services. These are two high growth, high margin portfolio’s that will drive significant revenue for the company. I would expect to see additional acquisitions in these areas to stay ahead of competition with differentiated programs and offerings that keep Best Buy top of mind with consumers.
The most important information I read in this report is the mandate to have an absolute attention to inventory. We can thrill customers with tons of ideas and products, and that may be important, but inventory turn productivity is the heartbeat of a profitable and substantial business. Hail to GMROI! Keep going Best Buy.
Most work from home people have done their tech upgrade the last year. Not surprised they will hit a slow cycle as the tech hasn’t aged out, plus with the economy there is less technology stipend money for WFH employees. As long as Best Buy offers good service and selection, they will be able to ride the normal refresh cycle for home tech.
Most work from home people have done their tech upgrade the last year. Not surprised they will hit a slow cycle as the tech hasn’t aged out, plus with the economy there is less technology stipend money for WFH employees. As long as Best Buy offers good service and selection, they will be able to ride the normal refresh cycle for home tech.
Looking at Best Buy’s current situation, there has been a noticeable decline in sales in several categories, a fact which can’t be ignored. It appears that they’re making adjustments to tackle these setbacks, such as focusing more on relevant products and services, which is a reasonable approach. Their attempts at better inventory management and promotional strategies could potentially help stabilize their profit margins and keep them on track to meet their annual targets.
Given the post-pandemic situation, we might see a moderation in growth due to broader economic factors. It’s possible that Best Buy is well-positioned to navigate these challenges due to their focus on digital and tech-driven lifestyle trends. However, only time will tell how well these strategic moves will serve them in the face of economic turbulence.
Looking at Best Buy’s current situation, there has been a noticeable decline in sales in several categories, a fact which can’t be ignored. It appears that they’re making adjustments to tackle these setbacks, such as focusing more on relevant products and services, which is a reasonable approach. Their attempts at better inventory management and promotional strategies could potentially help stabilize their profit margins and keep them on track to meet their annual targets.
Given the post-pandemic situation, we might see a moderation in growth due to broader economic factors. It’s possible that Best Buy is well-positioned to navigate these challenges due to their focus on digital and tech-driven lifestyle trends. However, only time will tell how well these strategic moves will serve them in the face of economic turbulence.
The second half of the year, with back to school and holiday buying, will absolutely be better for Best Buy. We’ve seen contraction across a lot of industries in the first half of this year. But Best Buy’s focus on tightening their inventory and providing a great customer experience will pay off in the long run.
Best Buy could easily have gone the way of RadioShack, but thanks to visionary leadership, it has thrived. Like Mr. Joly before her, I have every faith in Ms. Barry’s leadership.
No retailer is “built to last,” but Best Buy seems to be going in the right direction.
They are focusing on the customers, not necessarily to sell but to care for in an area of expertise that most of us find challenging. They are not living or dying with the success of their stores but recognizing online trends.
On the price side, they will be challenged by the Walmarts and Amazons, but neither will be able to match Best Buy in customer care.
Up to now, Best Buy has adapted well to the headwinds facing consumer spending and changing buying behavior. Kudos to the CFO for calling out the credit card profit share of domestic revenue on their Q1 earnings call. Mr. Bilunas said, “in fiscal ’23, the profit share was approximately 1.4% of domestic revenue, an increase of 50 basis points compared to fiscal ’20. The growth was driven by the increased usage of our card both at and outside of Best Buy and a favorable credit environment.” The credit card profit share here has roughly a 100% margin flow through, so arguably, a third of Best Buy’s EBIT comes from credit. With consumer credit turning from tailwind to headwind with potentially recessionary pressures and higher consumer credit defaults, the impact on overall margins still needs to be fully baked in. Credit pressures aside, retail comps guidance suggests improvement in a predominantly discretionary category in the second half of the year. Margins will continue under pressure given the company’s success with BOPIS, which usually carries lower add-on sales of warranties compared to in-store sales and the continued need for competitive store associate pay.
Our current economic cycle of inflation/recession/interest rate pressures makes it a challenge for nearly every retailer to post revenue gains. This will work itself out over time and until then, Best Buy will continue to execute well across its key areas of online, BOPIS and a solid in-store customer experience, while nimbly adapting to the expected fact that for now, consumers are trading down in their purchases.
The WFH phenomenon pulled sales forward and now comes the lull in activity. There’s a down cycle in play that includes DIY stores, as home projects were also pulled forward, and home sales are slow as part of the decline in overall business drivers. So what to do in a downcycle? – take share from weaker players, try new categories, and keep expenses in line with revenue.
Delivery turnaround, merchandise planning, inventory management, etc. where does the customer experience come into play as a key initiative? Where does provide exclusive, innovative, highly valuable benefits and experiences come into play? Does it start with paying for a subscription to get more? Does it start with having a Best Buy credit card and earn better rewards and savings and access as a valued customer? Is Best Buy built to last? Sure, but the chain could do so much better!
Best Buy is one of the good stories in play, in how even retailers who have lost their way can get back on top of their game by re-prioritizing, adjusting focus, the right products, merchandising and on executing. Leadership teams, and store teams deserve credit here.