Best Buy challenges abound – Will sales rebound?
This is always a challenge for a retailer that sells merchandise suitable for special occasions or seasonal events such as the Olympics or football games and soccer matches. This is especially true for a professional-type Best Buy.
Under the leadership of Corie Barry, CEO, the company chose to diversify its offerings to minimize its reliance on these types of sales. He developed a health and wellness program which is a timely initiative for seniors and then other products like home exercise items. He also added outdoor furniture which is very seasonal in many states. As each of these initiatives exploits new spending opportunities, one wonders if the company has lost its focus and is simply trying to win more sales. The synergies between these categories are not obvious.
The financial results bear this out. While last year the company as a whole saw a sales increase of +37.9%, recent performance tells a very different story. The company’s total sales fell 8.5% and profits also fell 35% from $2.32 last year to $1.49, a -35.8% drop. The company now expects revenue of $48.3 billion to $49.9 billion, compared to earlier guidance of $49.3 billion to $50.8 billion. Comparable sales are expected to decline 3.0% to 6.0% compared to the prior outlook of a decline of 1% to 4%.
One could cite the pandemic for the surge in sales of TVs and other electronics as people were confined to their homes for a while and it was not sustainable to match those gains as life opened up again. But I see a more complicated and difficult situation for Best Buy.
It was impressive to see Hubert Joly, the former president, bet on the associates to develop a culture of customer service. There is also the Geek Squad which took care of everything the customer had in electronics. This service culture was a competitive advantage. In addition, electronic lines have made the company famous and have been its focus.
Now we see a very Best Buy customer experience. First, consider the staffing of the store. In recent months, the company has gone from 5,000 full-time associates (many of whom have been laid off) to 2,000 part-time associates. It doesn’t make much sense if you want to offer your customers qualified service and guide them when making important purchases.
Now consider adding new products. New product lines added require new sales skills and can distract customers from the main purpose of their visit. Joly focused on people and their sales skills. By adding new products and reducing staff at the same time, the company lost that focus and competitive advantage.
It might be good for Corie Barry to clearly define Best Buy’s new mission – so that investors, team members and management have a clear understanding of where the strength of the company lies and what customers can expect. of them. Then marketing and in-store experience can align and hopefully rebuild customer enthusiasm.
Consumers are cutting back on discretionary spending as they watch a recession approach. This new behavior will certainly affect Best Buy unless it can present an attractive product story and find exclusive products that would attract customers to stores. A special range of computers or a single price on TVs would encourage shoppers to visit the store.
This summer, we are spending less time at home compared to the past two years at the height of the pandemic. Our outdoor activities are an expression of freedom after being confined at home; stores like Academy Sports + Outdoors and Dick’s Sporting Goods are taking advantage of this trend. On the downside, it’s not clear that Best Buy’s offerings can compete.
Getting back to its heart, Best Buy competes with Amazon
POST SCRIPTUM : Weakening sales hurt Best Buy’s outlook. More worrying to me is that we see a lack of imaginative vision. Where is the business going? Other electronics retailers have closed – Circuit City comes to mind – because they lost focus. We hope Corie Barry can avoid this and discuss her future at the next investor meeting.