By Neil Saunders
After a relatively lackluster holiday season softened last quarter’s figures, Best Buy has kicked off its new fiscal year with a much better set of numbers. A 1% uplift in companywide sales may not seem like much to get excited about, but against some challenging headwinds, it is a respectable performance.
In the domestic business, comparable sales were up by 1.4%. The closure of 12 large format and 40 Best Buy Mobile stores diluted this contribution and resulted in total domestic sales rising by a more modest 1.1%, although this still represents the highest growth in over a year. After last quarter’s slower-than-average increase in domestic online sales, Best Buy returned to form with a 22.5% increase during this period.
Fewer people than last year purchased physical products with their tax refunds, and fewer of those opted to buy electricals. This suggests the uptick in Best Buy’s performance is down to more than just consumers temporarily having a bit more money to spend.
Consumer electronics, and personal computing and mobile phones continue to be the laggards in terms of growth. On a domestic basis, the former posted 0.7% comparable growth while the latter declined by 0.3%. This dynamic is a reflection of the market, where the continued absence of ‘blockbuster’ must have products means replacement cycles are lengthening and consumers are less willing to splash out on new devices.
Best Buy’s strong showing suggests it is getting things like in-store displays, customer service, and inspiration right. … Sales of newer consumer technologies, like smart home, can be stimulated with good customer service, advice, and demonstrations.
Some of this softness is being offset by advances in other categories, including appliances. Even though it was up against a tough prior year comparable of 14.3% growth, Best Buy managed to increase sales of appliances by 4.6% during the quarter. Best Buy can capitalize on Sears’ difficulties thanks to its wide assortment and visibility in the market.
Entertainment also turned in an excellent performance, with domestic comparable sales up by 11.3%. This is particularly pleasing as many purchases in entertainment are wants-based rather than needs-based; customers are often choosier and discerning about what they buy and where they buy it. Best Buy’s strong showing suggests it is getting things like in-store displays, customer service, and inspiration right.
The market will remain challenging, both from stiff competition and a relatively weak release cycle of new devices like phones. However, we are encouraged by some of the steps Best Buy is taking to ensure it delivers growth. Sales of newer consumer technologies, like smart home, can be stimulated with good customer service, advice, and demonstrations. There is an appetite among consumers to know more about this sort of technology, and Best Buy is in an ideal position to inform and engage.
That this engagement can be delivered both online and in-store is key. Despite the continued surge of Amazon, the most encouraging figure from today’s results is that Best Buy is succeeding and growing share in the digital part of the market. This alone is a helpful dynamic, but when put alongside the benefits that stores provide, it gives Best Buy an advantage it can maximize on over the rest of this year and beyond.
Neil Saunders is managing director of research firm GlobalData Retail.