By Neil Saunders
Although Best Buy’s growth has slowed, the fact that it is up against tough prior-year comparatives makes these results respectable. By our calculations, the 3.1% domestic growth over the period means that it has gained a small amount of market share in the overall electronics sector. The bottom line is reasonable, although operating profit has declined slightly thanks to higher transportation and supply chain costs, and we do not see this issue dissipating any time soon.
Best Buy shops effectively showcase technology and allow customers to come and discover and try out products. Shoppers can get detailed advice and recommendations in a way that they can’t online.
These numbers have been delivered against a favorable backdrop with tailwinds aiding performance. Foremost among these is the healthy economy, which is stimulating consumer spending on bigger ticket items. Our own data indicate much higher numbers of consumers buying televisions, appliances, and other electronics than last year. As the predominant specialist player in the market, Best Buy has been the destination of choice for a fair slice of this demand.
Shops fulfill two vital functions
The woes of other retailers have also aided Best Buy, although only to a degree. The ongoing failure of Sears has caused large numbers of its shoppers to look elsewhere for appliances. From our data, 76% of current Sears customers say they would at least consider Best Buy as an alternative for appliances, making it one of the biggest potential beneficiaries as Sears closes more stores.
As much as these dynamics have aided Best Buy, it has largely been the author of its success because of the steps it has taken to make itself relevant to consumers. A large part of this comes down to how it has evolved the role its stores play in the customer journey. Best Buy shops now fulfill two vital functions.
First, they are a place of experience that effectively showcases technology and allows customers to come and discover and try out products. Second, they are a space in which shoppers can get detailed advice and recommendations in a way that they can’t online. Our data show that Best Buy’s satisfaction scores for customer service have risen over the past year, especially among older consumers. This is a testament to the effort put into staff training.
Advantage over online-only players
As important as stores are, online remains a major channel for purchasing electronics. On this front, Best Buy’s omnichannel services are excellent and afford its customers both speed and convenience when it comes to areas like collecting items in stores. The desire for immediacy in categories like personal electronics should not be underestimated. In many parts of the country, this gives Best Buy a natural advantage over online-only players.
At the heart of Best Buy’s strategy is a view that it can use its assets to help enrich people’s lives through technology—and this goes beyond selling them products. In light of this, the recent decision to acquire GreatCall is a logical evolution. It gives Best Buy a relevant service, driven by technology, that it can offer to consumers. It also helps counterbalance the pressure on both sales growth and margins of electronics products.
Challenges will continue to pervade the electronics space, including from more generalists making moves into the category. But Best Buy is well positioned to hold its own. We are also excited about the possibility of its services division, which we believe is a major future growth opportunity.
Neil Saunders is managing director of research firm GlobalData Retail.