Few retailers benefitted more from COVID than Best Buy. When confronted with the fact that restaurants, gyms, movie theaters and other non-essential businesses would be closed, consumers shopped at Best Buy to make purchases of smart TVs, gaming products and other entertainment options. Best Buy benefitted from the sales but when COVID ended, Best Buy was confronted with the realization that sales would decrease for several years as consumers don’t make repeat purchases of big ticket items like smart TVs very often.
Best Buy has also been forced to accept sales will be slow again in 2023 due to inflation. Best Buy CEO Corie Barry continues to state that she believes 2023 will be the bottom of the market for slow electronics sales. That remains to be seen.
What I find concerning about Best Buy is that the company remains stagnant in terms of growth. A review of annual revenue by year since 2013 validates that the company’s revenue in 2024 is estimated to be the same as the revenue in 2013; around $44B. For the last 12 years, it’s been groundhog day at Best Buy.
- Net sales in the quarter dropped from $10.33 billion in the year-ago period.
- Comparable sales, a key metric that includes sales online and at stores open at least 14 months, decreased 6.2% compared with the year ago period as customers bought fewer appliances, home theaters and mobile phones. Gaming systems, on the other hand, were sales drivers in the quarter, the company said.
- Online sales in the U.S. tumbled 7.1% year over year, but continued to drive a sizable part of the company’s business. E-commerce accounted for nearly a third of the retailer’s total revenue in the U.S., roughly in line with the year-ago proportion.
- The retailer narrowed its full-year outlook. It said it now expects revenue to range from $43.8 billion to $44.5 billion. It had previously anticipated between $43.8 billion to $45.2 billion. For comparable sales, it expects a decline of 4.5% to 6% instead of its prior guidance of between 3% to 6%.
- It slightly raised its profit expectations, however. It said it expects adjusted earnings per share of $6 to $6.40 instead of prior guidance of $5.70 to $6.50.
I don’t want to give the impression that Best Buy isn’t trying to grow. The company is trying to expand into health care, and they launched a paid subscription program, My Best Buy, to keep driving growth. The lowest tier of the program is free, but the top tier costs $179.99 per year. Best Buy is closing 20 – 30 stores and turning eight stores into experiential shops and expand their outlet store count from 19 to about 25.
In my opinion, the problem with best Buy isn’t that there is a lack of trying, the problem is that there is a lack of Thinking BIG. Everything that Best Buy is doing in 2023 is reminiscent of what Best Buy has done in other years. The company favors low-risk incremental strategies which barely move the needle vs. making Big Moves that position the company for growth.
Why such resistance to risk at Best Buy? The CFO is also responsible for enterprise strategy and has worked for Best Buy since 2006. I can’t stress this enough – Best Buy MUST create a separate position for strategy and remove the responsibility for strategy from the CFO. Many of Best Buy’s executive team has been with the company for 20 years; I find executives with long tenures rarely have the ability to Think BIG and drive change.
To make matters worse for Best Buy, they have an inexperienced CEO. Inexperienced CEOs should surround themselves with dynamic, well-educated, and confident executives who bring a global framework for how they view business to their roles. The executives should also bring experience from different industries instead of just retail. In other words, Best Buy should hire executives with experience working at Amazon, Meta, Microsoft, Google, Tesla and so on.
A question I’m often askes is this: What is a big move? I’m sure Best Buy considers their move into Health (Wellness at Home, Aging at Home, Care at Home) as being a big move but I disagree. I believe the strategy in its current form will generate little if any value to Best Buy. Why? Because Amazon and a leading tech company I’m aware of, each have a better strategy and products related to Health.
The good news for Best Buy is that they have a strong foundation. This means that the company can assess making REALLY BIG MOVES. For example, I strongly encourage Corie Barry to meet with Ron Vachris, President & COO at Costco, to discuss opportunities for Costco and Best Buy to form a partnership. Costco is a fabulous company but they have arguably the most underwhelming electronics section of any retailer in business. However, if Costco opens Best Buy branded electronics sections in each of their 600 stores, it will increase demand for electronics, gaming, and appliances from customers and generate increased revenue and growth for Costco and Best Buy.
I am not suggesting opening full-size Best Buy stores inside Costco stores. Only the top-selling products would be stocked. Customers that want to purchase an item not carried inside the store can order the products online for same day delivery in most cases. This can be achieved by making changes within the fulfillment model for Best Buy. Customers would also have the option of visiting a Best Buy store.
A partnership with Costco creates all kinds of possibilities for Best Buy including being able to close more stores, introduce additional opportunities for collaboration like My Best Buy, and introduce a better Health strategy via Costco and their pharmacy business. (Best Buy could approach Target, Sam’s Club or Walmart about a partnership but my preference is Costco.)
Best Buy should also explore opportunities for partnering with Tesla, Rivian, and others in the EV industry. A partnership/investment in Archer Aviation and Figure should be explored. A partnership with Meta and/or Open AI should be explored. Best Buy should explore M&A options; one of the more fascinating acquisition opportunities for Best Buy to make is acquiring Western Union.
A detailed review and assessment of the leading electronics, AR/VR, and gaming startups should be conducted to identify potential diamonds in the rough.
Finally, I believe best Buy is missing a significant opportunity in AI-based education.
I also encourage Best Buy to significantly improve their supply chain and fulfillment capabilities. The purpose of a supply chain is to do one thing – enable growth. Unfortunately for Best Buy, they don’t have such a supply chain. This is an area of concern for me.
Best Buy must become more aggressive in exploring opportunities outside of traditional retail. Why? Because that’s where the growth is.
Think BIG, Best Buy.