Analyst: Best Buy’s multichannel model proving to be a core strength
Although up against a soft comparative from the prior year, it is fair to say that Best Buy has produced a very robust set of second quarter numbers. The 4.9% increase in domestic sales underlines that the company is more than holding its own in the electricals market and should put pay to the oft repeated fiction that retailers of its ilk will struggle to survive in the era of Amazon.
As much as some of the elevated sales are the result of the exit of players like Hhgregg and the continued store closures of Sears and others, we believe this windfall is only part of the reason for an uptick in fortune. There are underlying reasons for Best Buy's success, many of which have been self-engineered by the company.
One of the most pleasing aspects of the results comes from online where sales advanced by a shade over 31%. This is an acceleration of Best Buy's usually strong growth in the channel, and by our figures means it is taking market share within the digital space. There are plenty of reasons for this success, but foremost among them is a joined-up proposition that allows customers to quickly and easily order products online and collect them in stores.
From our customer data, it is also clear that there are large groups of customers who feel more confident buying online from Best Buy than other e-commerce only merchants, mainly because Best Buy has stores where they can seek advice, resolve problems, and return items if needed. In this sense, Best Buy's multichannel model is proving to be a core strength.
It is certainly true that the continued growth of online changes physical space requirements – not in the sense of whether stores are needed, but in the type, configuration, and format of those stores. On this front, we are encouraged to see that Best Buy is making continual adjustments to its estate where it is appropriate to do so. While stores remain a firm profit center, this pruning of the fleet is a prudent activity that will prevent any longer-term headaches.
The fact that stores are needed is evident in customer data that shows how much shoppers value the advice of Best Buy associates. Naturally, some tech-savvy consumers have no need of this, but there many other segments that do and Best Buy's efforts to improve customer service is paying dividends.
Equally important is a desire to see and experience products before buying them – this applies in particular to larger purchases like televisions and appliances. Here, Best Buy's stores are a valuable asset and this should allow it to withstand the recent decision of Sears to sell some appliance brands via Amazon.
We also applaud Best Buy for engaging with newer technologies like smart home. From our data, we see that there is an appetite among consumers to know more about this sort of technology, and we believe Best Buy is in an ideal position to inform and engage.
Overall we remain confident about Best Buy. The company is well managed and is successfully navigating many of the challenges of retail. The exit of rivals has provided some helpful breathing space, and we do not doubt that there will be further exits over the years ahead. Best Buy is in an ideal position to capitalize on this.
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