Why Best Buy

Why Best Buy Will Probably Beat The Competition, Exceed Expectations

When Hubert Joly took the reins of Best Buy in late 2012 as CEO, he worked in the stores to get a feel for the company’s fiber.  Now he is transforming the company by taking an aggressive stance against all competitors – Amazon, Walmart, Target, Sears and any other retailers selling consumer electronics. His recent results have been exciting.  I predict this Christmas will be exceptional for Best Buy. Last year the company dropped 1.2% in domestic sales in the fourth quarter. The year before that it dropped 1.4%. With the new initiatives I believe the company will have 2 – 3% increase in the fourth quarter this year. Mr. Joly’s associates are geared up to give exceptional service—with flexible pricing to meet Amazon’s low price attacks.  He calls his strategy, “Renew Blue Transformation.”

The company is taking an aggressive stance to attract and retain customers. On Black Thursday (a.k.a. Thanksgiving) associates will hand out tickets two hours before the 5 pm store opening time. It’s just like the movies – where those who come first have the best choice of seats. At Best Buy, first come will have the best choice of some electronic bargains that cannot be beat. Their policy of not being undersold will also pay off – since they will fight for every sale by meeting the competition. Some of the specials include Panasonic 50” TV $199.99; $100 off I Pad Air; Samsung Galaxy E5 @$199.99, headphones by Dr. Dre $79.99, X Box bundle and controller $399.99, Samsung 55” TV 1399.99. There are double CD’s for $9.99 including hit movies such as How to Train Your Dragon, Malificient, etc. The list goes on and on. For the record: stores will close at 1 am and reopen again at 8 am Friday.

Recently the company reported third quarter results. Domestic comparable store sales rose and impressive 3.2% and comparable online sales rose 21.6%. The International segment was the only decline, dropping 3% in comparable sales. In the first two quarters both the domestic and the International divisions had comparable sales in the red.  Fully diluted earnings more than doubled from #$0.12 to $0.30 in the quarter. That is impressive.

A lot has happened under Mr. Joly’s leadership.  In the quarter the company’s cost reduction program added $65 Million to the cumulative total of $965 Million. The better results were driven by lower costs associated with returns and damages and greater efficiencies in both stores and supply chain. Mr. Joly outlined his holiday program that clearly reflected an understanding of the current consumer and competitive environment. Specifically he is focusing on unbeatable prices, expert service, and the ability to ship from 1,400 stores to customers.

The company now operates 1,475 stores in the United States and 468 stores in Canada and Mexico. In the most recent quarter consumer electronics accounted for 29% of sales, computing and mobile phones 49%. Entertainment 7%, appliances 8% while services and other accounted for 7%. Sales increases were strongest in entertainment (+16.6% comparable sales increase), and appliances (+5.7% in comparable sales increases). Consumer Electronics increased 3.1% and Computing and Mobile Phones 3.2%.

I think the company has drastically changed. The stores are more exciting – there are now Microsoft and Samsung boutiques in about 750 stores making it possible for associates to give customers more personal service and attention. There is more drive to close a sale and to keep customers in the store. The company has stated that they do not want to do “showrooming” of products. The impressive turnaround underway, together with the profit initiatives and the extra selling day between Thanksgiving and Christmas, gives me confidence that the company will be a winner this year. I see Best Buy gaining market share during what will, no doubt, be a very competitive environment this Holiday Season.