Best Buy: E-commerce vice tightens even as multichannel moves show promise

Best Buy: E-commerce vice tightens even as multichannel moves show promise

Summary: Best Buy has improved operations, grown online sales and improved its Net Promoter Score. But traffic to brick and mortar stores continues to fall.

TOPICS: E-Commerce

Best Buy CEO Hubert Joly said the company has to grow its online business and give such a differentiated experience across its sales channels that customers become promoters of the brand.

Following decidedly mixed second quarter results, Joly noted "traffic to our brick and mortar stores continued to decline" and added that Best Buy "will be intensifying our investments in customer-facing initiatives."

The effort is part of Best Buy's Renew Blue plan, which revolves around growing online sales---up 22 percent in the second quarter---enhance the in-store experience and leverage the company's multichannel presence.

Here's the catch: Best Buy is making real progress on the Renew Blue plan, has leveraged in-store inventory and distribution online and improved operations, but consumers will buy online. Meanwhile, consumer electronics sales are falling and mobile device sales are soft ahead of product launches such as Apple's iPhone 6. Best Buy expects same store sales to continue to decline in the low-single digits.

Best Buy's results in the second quarter reflect the moving parts. The company reported non-GAAP second quarter earnings of 44 cents a share on revenue of $8.9 billion, down from $9.27 billion a year ago. Same store sales fell 2.7 percent in the second quarter. Wall Street was looking for non-GAAP second quarter earnings of 31 cents a share on revenue of $8.98 billion.



The retailer's plan looks solid and there has been gains. For instance, Best Buy has been leveraging its store inventory online and giving its reps visibility into products across its distribution center. In addition, Best Buy has been able to sell returned goods online and focus on enforcing its policies. Renew Blue has led to annualized cost reductions of $900 million so far.

Simply put, Best Buy is becoming more efficient. The shopping experience also appears to have improved based on Net Promoter Scores. Nevertheless, Best Buy is in quite a bind. Consider the moving parts:

The product cycle in technology doesn't give anyone a reason to visit Best Buy. Smartphones have matured. Tablets are saturated. And PCs are on the typical installed base replacement cycle. There's no vroom in consumer electronics. Without a must have device, there's no reason to rush to get a gadget.

Growing online sales is worthwhile, but there's a transition and focus issue. Best Buy is growing its online sales, but to move the needle on overall revenue the retailer needs to do more. Can Best Buy really compete with Amazon? Execs said they will have some "online investments that are highly competitive" but wouldn't elaborate.

There are too many Best Buy stores. In the long run, Best Buy is going to have a real estate problem. In fact, all of retail will have a real estate issue. As distribution and fulfillment improve and delivery times shorten, the gap between physical and e-commerce almost disappears. Best Buy along with other retailers will need to cut costs by reducing the store footprint.

Joly said:

We are seeing a continued and rapid shift in consumer behavior, in researching and then buying online. If not buying online, (they are) studying the research process online before going to the stores. It reduces the number of trips to the store because you come to the store very well equipped and you complete it. This is not new but this is continuing and very significant.

Are stores within stores successful? Best Buy has Samsung, Microsoft and Apple experience areas. Now it has Sony and Samsung home theater experiences. Best Buy also has appliance experience areas. These experience zones do replace the square footage that used to highlight music, but the jury is out on whether they're effective.

Topic: E-Commerce

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  • Best Buy just sucks...still.

    I tried. I really did. I wanted a pair of headphones, and I wanted to hear them before I bought, so I ventured into Best Buy. There were two pairs I settled on to try, that were in stock to purchase. One, the display sound was broken, so I managed to get the plug free and plug into my phone...Then only one side of them worked. The other pair, well, were MIA from the display. I took the last carton up to customer service and asked if I might listen to them before I paid for them, and the display set is missing. NO, WE DON'T ALLOW THAT. Pressing forward, I figured I would buy them, get them out and try them before I left the store, and promptly return them if I didn't care for them. I went to the checkout to find ONE cashier, and no less than 10 unhappy people waiting in line. That was the last straw. I tossed the headphones on a nearby table and walked out. I ordered them from Amazon - either way I didn't get an audition. Best Buy obviously doesn't really want my business.
    • That's one store

      I find a huge difference between the management of the individual stores. It tends to depend on the affluence of the neighborhood and if they have any money.
      Buster Friendly
  • Worst named company ever

    I stopped going there in the 90's.

    They have never been best for anything. Their prices are the worst and their customer service has been horrendous for as long as they have been in business.

    Every once in a while I ride along with a friend who still hasn't learned and I amuse myself watching people pay far too much for far too little and getting screwed if they have to return something or get help.

    Best buy indeed.
    • They match

      They match the online prices and have for a while now. I've never had a problem returning items either. It's a lot faster and easier than having to UPS something back. Your other option is Walmart and I hate even walking into that place.
      Buster Friendly
  • No thank you.

    I attempted to buy items there last week, went to there website checked which store had the items i'm looking for.. Went to the first one.. Nope. Tried to have someone look up inventory. no help.. Left went with my day. Stopped at a second store Online saids they have it.. Nope. Had someone check, told me its a online item. Online said 3 stores had them. Said screw it and went to fry's.
    Anthony E
    • Huh?

      You just order if right off the web site and it will be waiting at the pickup desk. You won't get the confirmation email until someone has already got the item from the shelf.
      Buster Friendly
      • True

        But i'm constantly everywhere, So if i can't pick it from a place that saids it has it and have to order online.. Whats the purpose of a store. I understand most stuff they would have but if i go online and it saids a store has it and goto the store and they don't, Thats a waste of my time and gas. If i have to order online why not just go with amazon. I have prime and will get it next day air, and would most likely be cheaper.
        Anthony E
  • The Good, the Bad and the Ugly

    The Good:
    Every brick and mortar store contributes to local economy: jobs and local taxes
    Every brick and mortar store uses local electricity, water and pays rent
    You can place an order online and pick up at the store
    The Bad:
    The sales staff are poorly trained and are not knowledgeable
    Sometimes the sales staff are outright rude when you ask them technical questions
    The Ugly:
    Amazon and other online retailers are not only cheaper, there is no tax too(depending on where you live).

    How can BBY compete against "Ugly"?
  • Best Buy: E-commerce vice tightens even as multichannel moves show promise

    If they want better in store customer experiences they can start by getting rid of the Directv sales rep that is bothering the customers. Also need a wider variety of in store inventory. Most of their items are targeted at iPad's and iPhones. Then get rid of the nonselling items like chromebooks so customers aren't wasting their time asking about a device they won't purchase.
  • A suggestion to improve in store revenue

    Get rid of the non-selling Chromebooks and convert the space they're taking up into selling personal massage products from Homedics.
    Sir Name