Best Buy in crosshairs: Can it shift to e-commerce fast enough?

Summary:Best Buy had a few headaches during the holiday season. Price competition was brutal and extra promotions from retailers still couldn't get tech buyers to open up their wallets.

Best Buy's holiday same store sales were weak as the company struggled amid pricing pressure, a falloff in foot traffic as well as weak mobile sales as smartphone fatigue set in.

The company said its same store sales fell 0.8 percent for the nine weeks ended Jan. 4. Revenue for the same period was $11.45 billion, down from $11.75 billion a year ago.

Best Buy said Best Buy defended its market share with aggressive pricing---mostly to compete with traditional rivals as well as Amazon.com. But in the end, price is just table stakes. Best Buy needs to find its secret sauce. The retail industry has been a real battleground as rivals are all trying to work multichannel commerce strategies to better compete with the likes of Amazon. 

Oppenheimer analyst Brian Nagel said:

While some might view today's release as merely a 'bump in the road' for Best Buy and its turnaround, we view it as a stark reminder of the vulnerabilities in the company's business model, particularly amid heightened competition and a waning product cycle.

Also:  The future of shopping: When psychology and emotion meet analytics

On a conference call with analysts Best Buy CEO Hubert Joly noted that the company had some positives:

  • The company's Net Promoter Score improved. 
  • Online sales were up 23.5 percent.
  • Ship from store e-commerce fulfillment worked well in 400 stores and now Best Buy has 1,000 stores shipping.

However, Best Buy had supply issues for key products and struggled as consumers bailed on Christmas shopping. Best Buy's challenge now is to cut costs, grow online sales---now 11.5 percent of revenue up from 9 percent a year ago---and offer better service.

bby sales 011614

 

The broader issue is that Best Buy---along with other tech retailers---are facing a few large shifts. Among the notable points from Best Buy's conference call:

  • Pricing and sales don't work if everyone is doing them. Joly said: "Our holiday revenues were negatively impacted by number one, the aggressive promotional activity in the retail industry during the holiday period, which we believe did not result in higher industry achievement and had of course a deflationary impact on our revenue."

Joly continued:

"A highly promotional environment has not lead to higher industry demand. And so, from that standpoint, you would think, consider that the promotional environment could subside rationally as we look a head. But of course, we will have to see how this plays out.

  • Smartphones weren't selling. Mobile devices were among the biggest categories competing on price. That's because there just isn't "much newness" in the category, according to Best Buy execs. As a result, mobile device makers are fighting for share too. Analysts have previously noted that Apple's iPhone inventories are up or running high exiting December and Samsung's supply of smartphones are likely to move higher amid weak demand.
  • Best Buy can be an e-commerce player, but not fast enough. Best Buy said online sales hit $1.32 billion in the holiday season, but executives said they need to develop e-commerce more.

Topics: E-Commerce, Tech Industry

About

Larry Dignan is Editor in Chief of ZDNet and SmartPlanet as well as Editorial Director of ZDNet's sister site TechRepublic. He was most recently Executive Editor of News and Blogs at ZDNet. Prior to that he was executive news editor at eWeek and news editor at Baseline. He also served as the East Coast news editor and finance editor at CN... Full Bio

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