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Best Buy making progress linking store and web

US electricals retailer Best Buy reported improved margins and a jump in profit to $266 million (£170 million) for its second quarter, with eCommerce improvements and cost-cutting procedures playing a part in the company's turnaround.

Best Buy has struggled to compete on price in recent years, with the likes of online retail giant Amazon seizing the initiative in the US consumer electronics sector, but there were signs from this week's trading statement indicating that the company is moving in the right direction.

Despite like-for-like sales dropping 0.4% year on year, domestic online revenue was $477 million and comparable online sales increased 10.5%, with Best Buy attributing this to increased traffic and higher average order value.

Rahul Sharma, managing director at retail analyst Neev Capital, told Essential Retail that the quarterly update suggests there is still a difficult road ahead for Best Buy but it has made a number of improvements which point to a brighter future.

"Best Buy online always had traffic but stock-outs and delivery were always a huge issue," he noted.

"It is now further along in combining store and web availability and that will hugely help consumer satisfaction and help them fill a sale. Orders can be delivered from local stores where product shows as unavailable and that's a big plus for avoiding shrink and also ensuring consumers actually complete sale."

He also said that the retailer has made more progress on filling pricing gaps with Amazon, which may mean margin pain in the short term as the business continues its Renew Blue strategy to improve customer service and boost eCommerce operations. Further store closures could also play a part in the cost-cutting process, which in Q2 saw the firm eliminate $65 million in annualised costs.

Best Buy's nine-month annualised cost reduction total now stands at $390 million, but the business is working towards a target of $725 million in savings to ensure the company is better positioned in the modern, digital-led retail world.

Hubert Joly, Best Buy president and CEO, commented: "While we are clear there is much more work ahead, we have made measurable progress since we unveiled Renew Blue last year, including near flat comparable store sales, substantive cost take-outs, and better-than-expected earnings in the past three consecutive quarters."

As well as the cost reductions achieved in Q2, Joly said Best Buy made progress in its boosting comparable online sales, improving its net promoter score, enriching the retail customer experience through new types of store and piloting the "buy online – ship from store" initiative in 50 stores.

Sharma added: "All in all, it is still a tough road ahead for Best Buy but this quarter provided a glimpse that the company is not lost to Amazon.

"It can compete and the margin pain may well be less than expected, but it probably means still fewer stores and continued growth online."

www.neevcapital.co.uk