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Will Best Buy See a Holiday Recovery?
Best Buy’s second quarter marked its seventh straight period of negative same-store sales, but CEO Corie Barry predicted sales “could potentially turn positive” by the fourth quarter.
“We continue to expect that this year will be the low point in tech demand after two years of sales [declines],” said Barry last week on an analyst call. “Tech is a bigger part of all our lives, both in our homes and in our businesses than ever.”
She noted that consumer electronics continue to experience lower demand due to the pull forward of tech purchases early on during the pandemic coupled with the shift back into spending on services outside the home, like entertainment and travel. She added, “Persistent inflation has impacted spending decisions for a substantial part of the population.”
Among categories, home theater is seeing “signs of stabilization” with TV dollar sales down but units returning to growth, according to Barry. In the computing category, laptop dollar sales trends improved “materially” in the quarter with units flat.
Gaming is expected to continue to grow, with inventory becoming “more readily available” and “a promising slate of new software titles” slated to arrive in the back half of 2023. Finally, the mobile phone category is predicted to return to growth amid “less constrained” inventory versus the prior year.
Longer term, Barry expects Best Buy to benefit from several macro trends, including “cloud, augmented reality, expansion of broadband access and of course, generative AI.” She said, “As the largest CE specialty retailer with one-third of the U.S. computing and television market share, we can commercialize new technology for customers like no one else can.”
In January, The NPD Group predicted that consumer electronics would see a 5% industry decline in 2023 and flat growth in 2024 before returning to growth in 2025 with an assist from the replacement cycle.
Speaking to Marketplace, Mikako Kitagawa, Gartner’s tech analyst, believes the protracted pandemic made consumers more dependent on their mobile devices and digital technologies, but she also feels device upgrades aren’t currently being prioritized. She said, “Meaning that, you know, I used to upgrade my device every four years, or three years. Maybe stretch [that] to five years.”
Discussion Questions
DISCUSSION QUESTIONS: Do you see a potential sales recovery for the consumer electronics category by the fourth quarter? Are you bullish on consumer electronics’ growth long term given emerging technologies and tech overall becoming “a bigger part of all our lives” during the pandemic?
Poll
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Michael Zakkour
Founder - 5 New Digital &International Marketing Lead at UNILEVER
Brian Numainville
Principal, The Feedback Group
The most optimistic scenario for Best Buy this holiday is that it will fare less badly than it has during the first half of the year. This means more moderate sales declines and some easing of bottom line pressure. While there is some evidence to suggest that the purchase cycle for electronics is starting to pick back up, this is tempered by general economic conditions which remain unfavorable for big-ticket discretionary purchases. Indeed, if anything things may worsen as we move towards the holidays with student loan repayments resuming in October, inflation still biting, credit card debt rising, and the ‘excess’ savings from the pandemic dwindling. None of this is in Best Buy’s control, but nor does it augur well for the company’s prospects.
As for technology like augmented reality, Best Buy has role to play here – but it needs to do much more to promote and demo new tech in stores. And these things are medium term, not short term wins.
Excellent analysis of the situation Neil. The economic dynamics are not helping the demand for big ticket electronic products and the extensive upgrades to technology during the pandemic pulls sales forward. As long as Best Buy is getting their fair share of the electronics sales and they can weather this downturn in demand, they will be poised for growth during the next technology refresh cycle.
Very true, David. I think they are generally holding their own in a challenging market for the most part. Although there are some areas, like appliances, where they are losing share to others.
The stay-at-home pandemic challenges with electronics of every sort could salve seven straight periods of negative same-store sales. Therefore pulling sales forward. The pandemic created a new starting line for the latest phone, TV, or tablet life cycle.
The big question is, did Best Buy hold share during the downturn? If so, we should expect a recovery as the market recovers. Who is already eyeing the next larger screen with sharper pictures and better sound? However, if they did not hold share, losing it to other retailers and online, the expectation of a vibrant return is a big question.
Technology purchases should be driving our retail growth, so it is concerning when the leading retailer is struggling to drive YOY positive returns. Best Buy had an amazing innovation story with WIFI triggered sales assistance, branded shop in shops and the Geek Squad. While demand may have slowed, the need for tech and the desire of consumers to seek out new products has not. The re-emergence of Radio Shack will be interesting to watch as well.
I think a rough holiday season is ahead for Best Buy. Most of the exciting and new features of technology are coming from the software side, not the hardware side. A new generation of hardware advances is probably needed to spur Best Buy and other consumer electronics retailers back to healthy growth.
Long term, the consumer electronics category should be just fine. The issue, of course is, who will be selling those products and services. But since the article is about Best Buy’s Q4’s prospects this year I would say (adjusted for inflation) flat to moderate growth might be a stretch goal. I certainly don’t anticipate a vibrant rebound that soon, but who knows? Stranger things have happened in retail. The problem is that it may be tempting to rely on deep discounting to build traffic and that’s hardly the path to a significant sales recovery.
Best Buy has weathered tumultuous times before and has been able to effectively pivot to meet shifting market demand. New ideas, new formats, and new approaches to emerging technology (e.g., AI, medical tech, etc.) will be required.
I am bullish on Best Buy’s push into the health care arena where I see tech playing a HUGE role. Partnerships such as the one with Atrium Health for ‘hospital-at-home’ demonstrate the company’s willingness to be out in front of the health care space.
Best Buy has made changes from smaller formats to shifting personnel to adapt to the new marketplace.
Now- I share your opinion on the health care push they have taken (increased space in store as well) over the past year, but am disappointed it has not advanced as far as I believe it should have but perhaps their time is coming.
This may not be Best Buy’s year. Consumers are shifting spending toward essentials and experiences over big ticket electronics buys. If back to school didn’t move the needle for Best Buy’s electronics sales then holiday sales won’t be any better. There is too much uncertainty this year about jobs and inflation, too much worry about personal debt and the cost of living. Best Buy should prepare for some heavy discounting to move consumers into buying mode.
Overall, this holiday season isn’t expected to be strong for anyone. That said, electronics do typically fare better than other categories. So, I actually wouldn’t be surprised if Best Buy sees a slight uptick in Q4.
I believe this holiday will be a struggle for Best Buy and other retailers. I don’t see a killer “must-have” device to drive hype and business this year. I think consumers are weary of paying for incremental upgrades to their tech, especially when it’s becoming harder and harder to figure out exactly what extra functionality I’m paying for. Given that family budgets are stretched, I’m pessimistic about holiday sales.
Wow…I’m so surprised to learn of this “potential” not good news for BBY. Let’s see what the problems are: the stores are “dead zones” – have zero excitement. The shelves are “flat” and display goods with a lack of true engagement with the shopper. A CE store should create emotion and deliver experiences that entertain the shopper – any feel that they last time they shopped a Best Buy store? But wait there’s more. They introduced 3, count ’em 3 membership programs to give their loyal customers more in return for their loyalty. Of course they have to pay for services, warranty extensions and other benefits. If you want to build relationships with customers improve the shopping experience, give back to customers for their spend and in turn they will spend more over time. The MyBestBuy program for those who have a preference to use an alternate co-brand card for payment has a useless value proposition. As a once loyal RewardZone member from its inception it is time for a complete overhaul of the program – that might help improve revenue, margin on goods sold and market share in 2024.
Just what is the new, exciting must have technology that consumers are clamoring for? Otherwise it’s just selling more of the same stuff, with commodity based pricing and tighter margins as a thanks for the effort..
I’m not worried about the consumer electronics category. The slowdown in some areas is due to saturation. How many TVs does a house need? Don’t most people already have mobile phones? Prices for some electronics are coming down, but that doesn’t mean unit sales are down. Furthermore, there are always cycles. The pandemic disrupted the typical cycle, but you can always count on different sectors moving in and out of favor.
The consumer is simply not purchasing new electronics, home appliances, computers, and smart devices at the rate that the Best Buys of the world require to maintain their successful business run. As software solutions, gaming, and other formerly hardware-based products continue to evolve into a cloud-based subscription model, this also will take a hit at Best Buy’s business model.
Additionally, with the emergence of student loan repayments, continued inflationary pressures, stealth tech and consulting industry layoffs, and rising credit card and BNPL debt, we should expect discretionary spending to be flat or slightly decrease compared to last year. Best Buy must apply a very aggressive pricing and promotional cycle to attract consumers.
Aside from the external factors, Best Buy is at another point of reckoning. Just as Best Buy experienced a business turnaround under the leadership of Hubert Joly, it may be high time for Corie Barry and the leadership team to build a resilient product-centric operating model focusing on the lifetime value of each consumer and not the single transactions that will keep the business afloat.
Best Buy’s turn around will require one of the two following things (or both):
1) A killer hardware product. This is outside of Best Buy’s control as it needs a tech product like a substantially new iPhone, for example, to drive consumer desire to buy something new. Perhaps this will arrive for this holiday season, but it doesn’t seem highly probable.
2) Product lifecycle to naturally cause consumers to replace existing tech. Consumers purchased so much new tech during the pandemic, and much of it in products with lengthy product lifecycles (TVs, computers, mobile devices) that again, without option 1 happening, there’s not much motivation for consumers to upgrade right now.
Both of these lead me to believe we’ll see strong discounting on electronics goods to motivate consumers to buy. While that may move inventory, it will soften margins, so the net impact to revenue may be muted. New products in 2024 may be the best hope here.
It is a very tough category and getting even tougher with inroads by great retailers like Costco and Walmart. Best Buy has fought headwinds before, and I believe they can do it again, but it will take more than just doing the same. They need to redefine their value proposition again and back it up with people, process, and technology. (credit Paula Rosenblum)
In the meantime here’s one opportunity for Best Buy – deliver a simple price competitive solution that delivers the multiple picture-in-picture capability, using today’s streaming services, that I enjoyed with my old cable box 15 years ago!
While it’s hard to argue that tech isn’t becoming a bigger part, that doesn’t necessarily translate into higher spending: yesteryear’s $2000 gizmo is today’s $750 gizmo 2.0 (and may be next quarter’s on-sale@$500 gizmo 2.1). The reality is spending is still stressed – so says those who opine on it – and while some tech is essential, a lot of it isn’t: people may upgrade their phones, but that 400″ flat screen can wait for the Superbowl.
The consumer electronics sector is undeniably a cornerstone of modern life, but it’s also a rapidly evolving landscape. Best Buy’s ability to adapt to these changes, manage its inventory effectively, and offer unique value to consumers will be crucial for its survival. While I find the CEO’s focus on future trends like cloud computing, augmented reality, and AI to be promising, the current economic conditions and shifts in consumer behavior is a new reality for the time being. I’m not optimistic for this holiday season to be the turning point.