Best Buy bounces back

Re­tailer de­fies the odds and re­bounds in the face of Ama­zon supremacy

The Hamilton Spectator - - BUSINESS - JAMES F. PELTZ AND JACK FLEMMING

Five years ago Best Buy Co. looked like a re­tail di­nosaur, an­other vic­tim of e-com­merce jug­ger­naut Ama­zon.com and other on­line sell­ers.

The big-box elec­tron­ics chain was suf­fer­ing dwin­dling sales and prof­its in good part be­cause of “show­room­ing,” when shop­pers would come in to a Best Buy store to check out tele­vi­sions, com­put­ers and other items in per­son, and then buy them at cheaper prices on Ama­zon or else­where on­line.

Best Buy also was strug­gling with ex­ec­u­tive tur­moil and fac­ing a buy­out threat from a ma­jor stock­holder. The chain in 2012 named a new chief ex­ec­u­tive, Hu­bert Joly, but the French­man came from the hos­pi­tal­ity field and had no re­tail ex­pe­ri­ence. His ap­point­ment stunned an­a­lysts, with one say­ing that fix­ing Best Buy was “a Her­culean task even for an ac­com­plished re­tail ex­ec­u­tive.”

But Joly has proved up to the task so far. Un­der his turn­around plan, Best Buy has re­bounded to re­main a ma­jor U.S. re­tailer that’s hold­ing its own in the face of Ama­zon’s re­lent­less growth and the re­tail in­dus­try’s slump.

Best Buy “came out the other side suc­cess­fully to de­fend it­self against Ama­zon,” said Pe­ter Keith, an an­a­lyst with the in­vest­ment firm Piper Jaf­fray & Co.

Best Buy still op­er­ates 1,600 out­lets, and Joly views the stores as “a great as­set” even as Best Buy also moves in­creas­ingly to on­line sales.

“We don’t see our­selves as a brick-and-mor­tar re­tailer, we’re a multi-chan­nel re­tailer” that com­bines the stores, Best Buy’s web­site and its phone app to boost sales, Joly said in an in­ter­view. And he’s plan­ning to ex­pand Best Buy’s ser­vices, in­clud­ing its Geek Squad sup­port arm, to gen­er­ate more prod­uct sales.

Best Buy’s sales and profit have sta­bi­lized and its stock price has soared more than four­fold since late 2012, far out­pac­ing the broader mar­ket.

The com­pany’s same-store sales — that is, sales at stores open at least 14 months, and a key re­tail mea­sure — have con­tin­ued to rise mod­estly the last three years, re­vers­ing four years of de­clines.

Its do­mes­tic same-store sales edged up 0.3 per cent in its fis­cal year that ended Jan. 28, then jumped 1.6 per cent in its first quar­ter, which ended April 29.

Best Buy’s U.S. on­line sales rose 21 per cent in fis­cal 2017 and ac­counted for US$4.85 bil­lion, or 12 per cent, of Best Buy’s to­tal sales.

But Best Buy’s over­all an­nual rev­enue has re­mained flat be­cause the con­sumer-elec­tron­ics in­dus­try as a whole is grow­ing less than 3 per cent a year, ac­cord­ing to some an­a­lysts.

That’s keep­ing pres­sure on Best Buy, based in Rich­field, Minn., to keep wring­ing more profit from each dol­lar of rev­enue if it hopes to main­tain its mo­men­tum. Joly al­ready has shown it can be done.

His first move was to match ri­vals’ prices, es­pe­cially those at Ama­zon, so that in-store shop­pers no longer needed to buy else­where. “We had no choice, we had to take price off the ta­ble and match on­line prices,” Joly said.

That ap­peals to cus­tomers such as Scott Vell­man of Los An­ge­les, who bought the “Bat­tle­field 1” video game at a Best Buy store af­ter Best Buy matched its $50 price on Ama­zon. “I bought it here (in­stead of on­line) be­cause I didn’t want to wait for it to ship,” Vell­man said.

Best Buy next sped up its de­liv­ery times, in part by ex­pand­ing its na­tional dis­tri­bu­tion cen­tres, and beefed up its web­site and phone app so that cus­tomers could or­der on­line and pick up their prod­ucts at the stores or have them de­liv­ered.

Many of the DVDs and CDs that once were a sta­ple of Best Buy stores were cleared out, leav­ing room for Best Buy to in­vite such elec­tron­ics ven­dors as Sam­sung, Mi­crosoft and Ver­i­zon to set up “stores within the stores” in­side Best Buy’s out­lets.

“That en­abled Sam­sung, for in­stance, to have 1,400 stores in the U.S. in our stores, which would have taken years to build” on its own, Joly said.

The com­pany plowed a chunk of the sav­ings into bet­ter train­ing its em­ploy­ees so that they can ex­plain prod­ucts to shop­pers, which Joly be­lieved was cru­cial be­cause new tech­nol­ogy of­ten is con­fus­ing to many con­sumers.

Best Buy, with 125,000 em­ploy­ees, “has done an ex­cel­lent job im­prov­ing cus­tomer ser­vice,” Keith said in a re­cent note to clients.

MIN­NEAPO­LIS STAR TRI­BUNE

Best Buy’s stock price has soared more than four­fold since late 2012, while ri­val elec­tron­ics chain Ra­dioShack has filed for bankruptcy pro­tec­tion.

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