It is always a challenge for a retailer that sells merchandise keyed to special occasions or seasonal events such as the Olympics or football games and soccer matches. This is especially true for a business-like Best Buy
Under CEO Corie Barry, the company has chosen to diversify its offerings to minimize its dependence on these types of sales. It has developed a health and wellness program which is a timely initiative for senior citizens and then some other products like home exercise items. It has also added outdoor furniture which is very seasonal in many states. While each of these initiatives taps into new spending opportunities, one wonders if the company has lost its focus and is just trying to gain more sales. The synergies across these categories are not obvious.
Financial results reflect that. While last year the total company reported sales increases of +37.9% recent performance tells a very different story. Total company sales dropped 8.5% and earnings were down as well falling 35% from $2.32 last year to $1.49 a -35.8% drop. The company now looks for revenues of $48.3 Billion to $49.9 Billion, compared to the prior outlook 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 point to the pandemic for the sales spike in TVs and other electronics because people were homebound for quite a while and matching those gains was not sustainable as life opened up again. But I see a more complicated, more challenging situation facing Best Buy.
It was impressive to see Hubert Joly, the former president, focus on the associates to develop a culture of customer service. There is also the Geek Squad which serviced everything the customer had in electronics. This service culture was a competitive advantage. In addition, electronics lines made the company famous and were its focus.
Now, we see a very Best Buy customer experience. First, consider store staffing. In recent months, the company has switched from 5,000 full time associates, (many were fired), to 2,000 part time associates. It does not make much sense if you want to give your customers skilled service and guide them as they make big ticket purchases..
Now, consider the addition of new products. The new product lines that were added need new selling skills and may divert customers from the main purpose of his or her visit. Joly’s focus was on people and their selling skills. By adding new products and reducing staff at the same time, the company lost that tight focus and competitive edge.
Perhaps it would be good for Corie Barry to clearly define the new mission of Best Buy – so that investors, team members, and management clearly understand where the company strength is and what customers can expect from them. Then, marketing and in-store experience can align and hopefully rebuild customer enthusiasm.
Consumers are reducing their discretionary spending as they see a recession approaching. This new behavior will certainly affect Best Buy unless it can present an appealing product story and find proprietary products that would lure customers to the stores. A special line of computers or a unique price on television sets would encourage shoppers to visit the store.
This summer we are spending less time at home compared to the last two years – the height of the pandemic. Our outdoor activities are an expression of freedom after being home bound; stores like Academy Sports + Outdoors and Dick’s Sporting Goods benefit from this trend. In contrast, it’s not clear that Best Buy’s offerings are able to compete.
Going back to its core, Best Buy competes with Amazon
POSTSCRIPT: The weakening sales have hurt the outlook for Best Buy. More concerning to me is that we see a lack of imaginative vision. Where is the company going? Other retailers in the electronics field have closed their doors – Circuit City comes to mind – because they lost focus. We hope Corie Barry can avoid that and discuss the future she sees at the next investor meeting.