Microsoft computers on display at a Best Buy store in Secaucus, NJ
Melissa Repko | CNBC
Better buy on Tuesday announced new plans to try to reverse a two-year sales decline and cash in on a long-awaited pandemic-era replacement shopping cycle and a new wave of innovation.
The consumer electronics retailer said it will add trained sales teams to key parts of its stores, create more YouTube videos to pique customer curiosity and launch a marketing campaign with a new tagline: “Imagine it.” .
In an interview with CNBC, CEO Corie Barry said customers have told Best Buy that the retail store experiences and the technology they offer have “lost a little [their] shine.” He added that the innovation of consumer electronics has surpassed.
“That’s our big focus this year,” he said. “Let’s get all that ‘new’ back there.”
One of Best Buy’s biggest hopes to boost sales comes from AI-enabled laptops and smartphones.
However, the retailer doesn’t expect its sales to improve overnight. The company has reported 10 straight quarters of declining comparable sales, a key metric that strips out the impact of store openings and closings. Best Buy said in May that it expects full-year comparable sales to be roughly flat or down as much as 3% compared to a year ago.
Best Buy expects revenue to range from $41.3 billion to $42.6 billion, down from $46.3 billion last year. The range would put its revenue slightly below the $43.6 billion for the pre-pandemic fiscal year that ended in early 2020.
Barry said consumers are still “making very clear value-based decisions.”
Best Buy shares reflect selling difficulties: As of Monday’s close, the stock is down about 36% from the all-time high of $138 the stock hit during the Covid pandemic.
Steven Zaccone, an equity research analyst who covers retail for Citi Research, upgraded Best Buy stock from sell to buy in early June, in part because of the expected wave of new products.
But he admitted trends have become harder to predict as consumers watch their wallets after the highest inflation in decades and are distracted by the uncertainty of this year’s presidential election.
“People who focus on the short term would say the category is still going down,” he said. “So the call is based on the hope that you will have an axis of growth.”
Wearable technology on display at the Best Buy store in Secaucus, NJ
Melissa Repko | CNBC
Rooting for a replacement cycle
Best Buy executives and investors have reason to feel optimistic. In each of the previous two quarters, Best Buy’s laptop sales were higher than the previous periods of the year, which means a replacement and upgrade cycle may be on the way.
Last week, shoppers’ purchases of consumer electronics such as tablets, TVs and Bluetooth speakers helped drove a record $14.2 billion in sales on U.S. retailer sites during Amazon’s two-day Prime event, according to Adobe Analytics. It was a shift from last year, when inflation-worn shoppers took advantage of deals on household staples. (Best Buy is among the retailers that participated in the Amazon-created retail holiday by offering its own deals.)
Best Buy’s ability to increase sales depends in part on its suppliers. It was hungry for innovation that gives customers new reasons to come to its stores or website.
The last months, apple, Samsung and Microsoft have announced new releases that could create hype and increase customer traffic. Apple introduced a collection of new iPads in May. Earlier this month, Samsung debuted the first “smart rings” with health monitoring features to compete with the Oura ring and the Apple Watch.
Elsewhere, Microsoft announced a collection of new PCs in May that includes Copilot, an artificial intelligence chatbot. The collection, which includes about 40 different items with about 40% exclusive to Best Buy, began shipping in mid-June.
Barry said the retail chain will benefit as customers see these leaps in technology and stores offer entirely new lines of business such as rings that it can track sleep, physical activity and more.
“Five years ago, we would never have had jewelry in our stores, and now we’ll have a whole section of wellness products that you can wear in really unique ways,” she said.
Best Buy is launching a new marketing campaign this school season that includes a “spothologram” named Gram and a new tagline “Imagine that.”
Courtesy: Best Buy
Less technical specifications, more discovery
Instead of knocking down TV and laptop dimensions, Best Buy staff will focus on helping customers understand how the items can save them time or make life easier, Barry said.
In stores, customers will see more experiential displays showcasing products such as Tesla chargers, GoPro video equipment and Lovesac furniture later this summer. It will also add dedicated teams to the store’s computer, appliance and home theater departments, three key areas where Barry said customers tend to need support.
Barry said those store employees will highlight unique features that customers might not be aware of, such as a laptop with more than twice the battery life, a washer/dryer combo that allows them to do two loads of laundry at once, or a home cinema system that can Make a training space look like a filming studio.
In the Best Buy app, customers will see a personalized home screen, a new “Discover” tab and an ability to set notifications for when an item on their wishlist goes on sale.
The company plans to release more than 500 videos by the end of the year on its YouTube channel, app and website. That’s three times the number he added last year.
And as it prepares for the back-to-school season, Best Buy will run commercials online, on streaming services and on social media featuring a “spokeologram” named Gram.
“We’re absolutely doubling down on what makes us different, and I think we’re the only ones that will kind of help bring that ‘What if?’ question in life for our customers,” said Barry.
However, Best Buy will implement this sharper customer strategy with a tighter budget. Barry said on the company’s earnings call in May that the retailer plans about $750 million in capital spending this fiscal year, about $50 million less than last year. It is cutting costs with “refreshes” of all of its roughly 900 U.S. stores instead of major renovations and new store openings, he said.
The company’s dedicated teams in part of the store will be made up of its existing workforce and supplemented with employees from its vendors, he told CNBC.
A Best Buy store in Woodbridge, Virginia, USA, on Tuesday, May 21, 2024.
Nathan Howard | Bloomberg | Getty Images
“Murphy’s Law of Headwinds”
Best Buy has faced “Murphy’s Law of headwinds” over the past three years, said Scot Ciccarelli, equity research analyst at Truist Securities, referring to the saying that “Anything that can go wrong will go wrong.”
Among the company’s challenges, consumers have shied away from pricier purchases like smartphones as everyday costs like food, gas and rent have risen. Slower turnover in the housing market fueled by higher interest rates has dampened demand for home-related purchases such as a bigger TV or new kitchen appliances.
But Ciccarelli said Best Buy’s unusually high sales during the pandemic have haunted the retailer more. It threw off the typical pace of buyers replacing smartphones, laptops, home appliances and more as many of them bought this technology when setting up their offices, gyms and kitchens at home during the Covid lockdown.
Additionally, as consumer electronics brands faced temporarily closed factories and clogged supply chains during the pandemic, they debuted less game-changing technology. Without those developments, Best Buy is stuck competing on price by selling roughly the same devices as rivals such as Amazon and Walmart, particularly if customers have little reason to touch or feel a product before buying, he said. Ciccarelli.
Consumer electronics was a weaker retail category, with sales down 4% in dollars and 5% in units year-to-date through the end of June compared with the year-ago period, according to Circana, a market research that tracks point-of-sale data at major US retailers. The market research company’s definition includes most major appliances such as televisions, tablets and audio equipment, but excludes some categories that Best Buy sells, such as home appliances.
However, consumer electronics spending is up 5% this year compared to the same period before the pandemic in 2019, according to Circana.
Part of the increase comes from higher prices for computers, televisions and other items, said Paul Gagnon, consumer technology industry consultant for Circana. For example, he said the average price spent on items in the headphones category has increased by 60% compared to 2019, as customers turn to wireless headphones such as Apple’s Airpods or wireless headbands.
The biggest selling season for consumer electronics is yet to come. About 57% of the category’s sales have historically occurred in the second half of the year, according to Circana data.
And the biggest days for consumer electronics are still ahead in the back-to-school and holiday seasons.
