Best Buy's stores are key to its momentum #SmallBiz - The Entrepreneurial Way with A.I.

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Friday, November 29, 2019

Best Buy's stores are key to its momentum #SmallBiz

#SmallBusiness


Dive Brief:

  • Best Buy on Tuesday reported that overall revenue rose to $9.76 billion from $9.59 billion in the year-ago quarter; U.S. revenue rose 2.4% to $8.96 billion from $8.76 billion, driven in part by the company's GreatCall healthcare services unit, according to a company press release.

  • Overall comparable sales rose 1.7%, the company said. U.S. comps rose 2% (on top of 4.3% in the year-ago quarter), as digital comps rose 15% to $1.4 billion from 12.6% a year ago. As a percentage of domestic revenue, online revenue expanded by approximately 180 basis points to 15.6% versus 13.8% last year, per the release.

  • Net earnings rose to $293 million from $277 million a year ago. The electronics retailer raised its guidance for both the holiday quarter and the year, saying it expects overall annual revenue to land between $43.2 billion and $43.6 billion, (up from prior guidance of $43.1 billion to $43.6 billion); comp growth to reach 1% to 2%, (from 0.7% to 1.7%); and its non-GAAP operating income rate to be "slightly up from the 4.6% rate in FY19," (compared to prior guidance of flat to slightly up from that).

Dive Insight:

Best Buy is solidifying its position in a market where analysts see a more wary consumer, thanks in part to its strength as a brick-and-mortar retailer. That is blunting what was seen just a few years ago as a looming threat in electronics from Amazon.

"[Best Buy] is more than holding its own against the likes of Walmart, Amazon, and Target,” Moody's Investors Service analyst Charlie O'Shea wrote in emailed comments, adding that its guidance upgrade for the fourth quarter "in the face of already cutthroat promotional activity is a reflection of a high level of confidence in its holiday strategy, which includes a value-added consultative store experience that provides a meaningful advantage over its core competitors."

It's a remarkable situation, in light of this year's record number of store closures and the difficulty faced by so many retailers in fashioning an ideal physical footprintBest Buy has shuttered some 100 big-box locations in the last decade or so, taking advantage of lease renewals to reevaluate its fleet, according to a recent report from the Minneapolis Star-Tribune. The retailer also shuttered all of its nearly 260 stand-alone mobile stores last year. Still, Mike Mohan, president and chief operating officer, at the company's annual investor conference in September, called stores "vital to our strategy." 

It helps that shoppers in physical stores are more likely to pony up for discretionary items like electronics, according to data from GlobalData Retail. Best Buy's well trained and helpful store staff help push that further, GlobalData Retail Managing Director Neil Saunders​ said in emailed comments, calling that "a major advantage over other players — especially those who sell only online" and "a fast–growing area and one that will pay dividends for Best Buy over the next decade."

Stores also provide an advantage in e-commerce. The retailer has long leveraged its stores for fulfillment, and it now provides next-day delivery of online orders for more than 90% of customers, up from about 80% a year ago, CEO Corie Barry told analysts on Tuesday morning. Most items ordered online are ready for in-store pickup within an hour, she also said.

While revenue was hurt somewhat by store closures, that hasn't slowed down the retailer all that much, according to data from foot traffic analytics platform Placer.ai, which found that visits to Best Buy stores in August were 7.7% above the baseline for the period from July 2017 through October 2019. 

The holidays are poised to push the company further, according to Moody's O'Shea. "Best Buy is well-positioned to continue as one of the top performers in retail, with this holiday season set up for it to continue to build momentum," he said.





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Daphne Howland, Khareem Sudlow