By Neil Saunders
In some ways, Best Buy’s performance is a good indicator of the health of the consumer economy. It sells many expensive, discretionary items that shoppers can forgo if money is tight or if they lack confidence in their financial futures. This morning’s good results show that neither consumer spending nor confidence are currently in short supply. They underline the fact that retailer results are still mostly down to the strategies and choices of individual players rather than a consequence of macroeconomic conditions.
At first glance, the 1.7% total revenue growth and the 1.6% uplift in enterprisewide comparable sales may seem modest. But against last year’s robust increases, they are good numbers that show Best Buy still has plenty of momentum. Perhaps even more positive is the 1.9% increase in domestic comparable sales, which underlines the strength of the local U.S. market, where Best Buy takes the majority of its revenue.
There is uneven performance across categories. On a comparable basis, sales of entertainment technology, which includes home theaters and gaming consoles, performed badly with sales down by almost 14%. This is partly a consequence of strong growth last year and partly the result of a weak release cycle in terms of new technology. By contrast, the appliances category grew by 14% in comparable terms, thanks to sales migration from shuttered Sears stores and a small uptick in demand from more consumers undertaking kitchen improvement projects.
We remain impressed with Best Buy’s expansion into relatively new technological areas like smart home. Within this category, Best Buy has one of the most comprehensive offerings and has been quick to showcase new and innovative brands and to back this with compelling in-store displays and good levels of customer service. This is one reason that stores, and wider Best Buy brand, remain a destination for shoppers looking for solutions and trusted advice. This is a strong differentiator over rivals, especially online players like Amazon.
Best Buy continues to think beyond products by growing its services division—an area that can potentially offset areas of weakness in certain product categories. The GreatCall and Critical Signal Technologies acquisitions give Best Buy a good stake in the health-monitoring market. Over the medium term, we see potential for Best Buy to get into more areas of technology-enabled services in the health or home monitoring sectors—with the company’s trusted brand name helping to drive growth.
Online continues to drive good growth for the company, with a 17.3% uplift in domestic digital sales over last year. With around 40% of online orders now being picked up in store, Best Buy is also in a good position to protect both margins and market share as the online shipping wars intensify. However, we also applaud the range of fast-shipping options of same-day and next-day delivery across many metro areas; enabling convenience and speed has been an important factor in allowing Best Buy to compete with online rivals.
Looking ahead, we believe Best Buy will remain on course for the rest of this fiscal year. However, as we move into 2020 and a more challenging consumer economy, growth could slow, at least in terms of product sales.
Neil Saunders is managing director of GlobalData Retail.