Best Buy's holiday sales were solid, but the company warned of tough days ahead due to pricing pressure and weak demand for electronics. The fix: Step up its e-commerce efforts and moves to sell across multiple channels.
If there's one lesson from holiday 2014, it's that retailers have to step up efforts to be more like Amazon and less like brick and mortar dependent players. For many retailers---like Macy's---that means fewer physical stores and more spending on information technology. In addition stores are also becoming distribution centers for retailers like Best Buy.
Best Buy offers a good case study of the shifts in retailing. For instance, Best Buy delivered $11.4 billion in holiday sales and its U.S. business had a 2.6 percent gain in same store sales. Sales were driven by large screen TVs and mobile phones. Those gains offset "significant weakness in tablets." Best Buy said online sales were up 13.4 percent and more than half of that sales growth shipped from stores.
Compared to a year or two ago, Best Buy has made real progress in efficiency and multi-channel retailing. The retailer has focused on in-store service with e-commerce pricing.
The problem: Best Buy is going to be whacked by "external pressures" such as deflationary pricing, weak demand for electronics, waning interest in extended warranties and currency fluctuations. Best Buy's best and only hope is to be a category leader against the likes of Amazon, Wal-Mart and a bunch of other players in the consumer electronics market.
Another factor for Best Buy is that holiday sales were largely driven by iPhone 6 and iPhone 6 Plus devices. CFO Sharon McCollam said:
We believe that the positive domestic sales trends that we saw in mobile phones and home theater during the holiday period, in addition to the share gains we saw across other NPD-reported Consumer Electronics categories, were partially driven by the excitement around high-profile products and will not likely continue at holiday level.
CEO Hubert Joly said:
To win against this backdrop, we have to lead - which requires investing now. Therefore, we are already beginning to make the incremental investments in the growth initiatives that we just discussed which will put year-over-year pressure on our non-GAAP operating income rate beginning as early as Q1 FY16.