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

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.

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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

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15 comments
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  • They are lost.

    They have a business e-commerce site that I stumbled upon at Christmas looking for a specific keyboard. Best Buy for business was never mentioned on their regular consumer site. Sounds like a Microsoft?
    mlgold@...
    • ???

      "Sounds like a Microsoft?"
      William.Farrel
  • Another bad PR company

    Nobody really thinks Best Buy can survive in brick and mortar store form. People are rapidly moving towards online shopping and its because of convenience, avoiding pushy sales people and to browse for the best price. The price thing in itself pushes margins so low that a store cannot possible pay people decent wages and still provide low pricing. I like the smaller Best Buy mobile stores because people generally want their smart phone purchases to be instant gratification. So it makes sense to sell mobile in stores. The rest, is simply not viable anymore.
    JohnnyES
  • I have hated Best Buy for years, but...

    I went in this summer just to look at prices and compare features. I didn't intend to give them a dime. Thanks to some great people working the floor I bought 3 large items to the tune of ~$700, and went back a few weeks later to buy a small camera for my daughter.

    Apparently, being on the verge of bankruptcy is good for customer service! Who knew?
    mlashinsky@...
    • I have hated Best Buy

      Best Buy's return policies, treatment of customers, not stocking what is wanted, etc., are so bad that I buy my tech gear from Costco, Walmart, and Staples when I buy at stores rather than put up with Best Buy. I don't expect rock bottom pricing from Best Buy, but I do expect them to be no more than 10%-20% markup above Newegg and other large on-line firms. Best Buy never fails to show me 100% markups on out-dated merchandise. I used to go in there to waste time while my wife shopped nearby, but I can't be bothered any more.
      thinking about consequences
    • Depends on the store

      It is really hit or miss depending on the store. Once the sales people are adequately trained in a department, they are generally moved to another. The other issue is compensation for sales people. Managers push warranty sales so hard since that is how they are graded that sometimes a salesperson will intentionally sabotage a sale if the customer has hinted they don't want the extended coverage (I've worked at Best Buy and I have seen it). I have also seen customer service void warranties for minor surface scratches to a plastic piece when it was obviously an internal defect. Best Buy's days of pushing $100 HDMI cables for new TVs have seemed to have passed now that people have become wise that the $5 MonoPrice cable works just as well.

      If anyone ever asks me where they should buy any technology item (store, not web), I tell them to go to MicroCenter. In Best Buy's home turf, that place is ALWAYS packed.
      fjellt
  • The real problems.....

    First off, I refuse to shop at Best Buy anymore, due to their return policy requiring ID on ALL returns, even if you have a receipt. I personally think that is wrong and their so called secure systems that contain the information that they take down have been hacked on several occasions.

    That being said, while it's my personal reason for not shopping there, I doubt that a majority of people are thinking about the potential of identity theft from these returns.

    What I think the problem really comes down to is convenience. For example, Amazon has market fresh in my area that allows same day delivery and it is good on many of the Amazon products as well. If you do attended delivery, they will even bring it into your house and will deliver on Christmas day. Think about this scenario for a moment, you are trying to hide the presents from your kids, but don't have much room in your house to do so. Instead, you can wait to order from Amazon, have them wrap and deliver the presents late on Christmas Eve or early on Christmas Day (whichever you prefer) and do attended delivery and they put the presents under the tree for you.

    No, not everyone would pay for that level of connivence, but many will. But how much more convenient is it to have Amazon just deliver your gifts rather than hop in the car, drive to the store, find a parking space, find the presents, check the prices, stand in the checkout line, take the presents back into the house, wrap the presents, hide the presents, bring them out on Christmas Eve. Just ordering from Amazon (without using Market Fresh) doesn't eliminate hiding the presents or bringing them out on Christmas Eve, but it does eliminate the rest of the headaches. Bottom line is people are willing to pay slightly more to avoid these headaches, but then Amazon usually matches the price (or beats it) and it becomes a no brainer to buy on Amazon. Especially if you subscribe to Amazon Prime for the benefits other than shipping, then you get the free two shipping on top of it, it really is a no brainer who will win that war.
    cmwade1977
    • It's less of a hassle to buy in the store.

      It may seem like it's less of a hassle for you to buy electronics online, but for some of us its more a pain in the butt. The UPS and FEDEX delivery time always varies along my route, and when you work 2 jobs trying to be home when it comes is next to impossible. All electronics require a signature, and I am not about to leave a note for them to leave a box with the Amazon logo (which basically screams STEAL ME) on the porch of my urban home. Oh you can schedule to have it held at the facility to pick it up, but what would make that more convenient than just buying it and selecting store pick up? And with store pick up you can get it that day. Or I can just head to the store with my Amazon ad and have them match it and leave with it that day. This is even better on the weekends when Amazon can't deliver because UPS and FEDEX don't.
      Now the sales staff, half the time I know more about the product than the staff does. But that is because when I am going to buy something I do research on it. They are used to people just walking in with no knowledge of anything. And the one thing that really gets on my nerves is when someone is going to buy computers/tablets/laptops the first question I think they should really ask people is what they are going to use it for. But no, they just go point them in the direction of what's on sale or what the associate prefers. Half the time it's more than what the person needs. Or they buy a stupid MacBook pro just so they can go online when a chromebook would suffice.
      arcana1973
  • They do not negotiate

    Posting this in hopes that someone from Best Buy who can change policy reads it!!

    I want to buy from them, but if I can get it for the same price from a legitimate Internet store and do not pay sales tax or shipping, why would I?

    Their price matching does not extend to TCP, total cost of purchase, i.e., they would not sell to me for the Internet price because it required them to 'include' the sales tax in the price.

    Plus, they only change prices once a week, another issue when you look at how Internet stores do it.
    sng - TX
  • Amazon is not the only or best source.

    WalMart online pricing beats the heck out of Amazon, has free timely shipping over $50, AND a place to return unwanted items within driving distance of 90% of Americans.

    Amazon is quite overrated.
    louishelps
    • Walmart...

      In my experience, The products that Walmart sells are cheap, but also low quality.

      I really like Amazon because in most cases, I can choose the level of quality that I want. I would rather pay more for quality then put up with the frustration of buying something cheap that breaks or doesn't work.

      Amazon's selection is amazing, when I have a specific product in mind, Amazon has it. Best Buy doesn't even come close to Amazon's selection, and by buying from Amazon, I don't have to put up with their pushy extended warranty sell.
      steve6225
  • They just can't compete...

    And for that I feel sorry for all the people employed there. When they go under there's going to be a lot of people out of jobs. I guess McDonald's or WalMart are hiring... Sadly that would be a cut in pay for them, but that's America: Everyone wants a cheap price but no one realizes what that cheap price really costs us all.
    I'm also suffering from what I'd call "Tech Saturation". I have all the tech I need and it's all functional (for now at least until that Chinese 'high quality' kicks in and they fail prematurely) so why would I go out and buy more? I think a fair number of Americans are at the same stage too.
    Zorched
  • BB has the worst CS.

    Over the holidays someone placed some orders on my BB account using an assumed stolen credit card. I emailed BB and changed my password. The canned response warned of slow email response and suggested using phone support (BIG mistake in e-commerce! People do Not Want To Call You!). I never heard back from them. So whoever had their credit card charged for that stuff, sorry, I tried. One of the items got sent here and I am not inclined to battle with poor CS to return it if they don't want it back. They are doomed, I would never trust their Internet Sales to come through when I needed help. That is how Amazon took over the world, great CS.
    Estarianne
  • Never again

    Best Buy made their reputation on having knowledgeable people on the floor and decent products in stock.

    They've since abandoned both practices.

    Why would I travel to a store to look for a product that isn't in stock (even when their website says that it is), wait in line to be served by a disinterested staff who rarely knows anything about the products they sell, pay more than what I can get online or from other stores, only to get treated link a criminal if something needs to be returned?

    This reminds me of Radio Shack... another retailer who moved away from hiring knowledgeable staff with excellent customer service to being just another bottom-of-the-barrel retailer.
    Marc Jellinek
    • not in stock

      I've had the same problem at Best Buy (and WalMart, and Staples). Web site says the item I want is in stock, I put a hold for pick-up on it, go to store to find it is not in stock after all. The sales people always give me some lame excuse about the inventory system only updating once/day or some other nonsense. Whatever. Enjoy your self-inflicted demise, back to Amazon for me.
      frylock