Best Buy Experiences Second Quarter Declines; Invests Further in Technology, Member Benefits
Best Buy announced second-quarter earnings marked by sharp declines, with net sales down 7.2% year over year after experiencing a significant reduction the year prior.
The company reported significant declines in departments like consumer electronics, appliances, and mobile phones. It noted that the industry is continuing to experience lower consumer demands due to customers pulling back on pandemic-fueled tech purchases and spending more outside the home on travel and entertainment, in addition to inflation impacting spending decisions.
“We continue to expect that this year will be the low point in tech demand after two years of sales declines,” Corie Barry, CEO at Best Buy, commented on a recent earnings call.
The nation’s largest consumer electronics chain detailed on a recent earnings call that they are updating their comparable sales guidance. They now expect declines from 4.5% to 6%, similar to the previous range of 3% to 6%.
“On a two-year basis, second quarter revenue has declined by almost a fifth,” said Neil Saunders, managing director of GlobalData. “There is one small crumb of comfort in the fact that compared to the same period in pre-pandemic 2019, sales are up by 0.5%. This, however, is a very modest gain, and given the inflation in costs and overheads, it essentially means that the company has gone backward.”
The retailer expects to spend $850 million this year on capital expenditures, a reduction of $80 million compared to last year due to lower store-related investments.
“Tech is a bigger part of all our lives, both in our homes and in our businesses than ever, and we believe next year the consumer electronics industry should see stabilization and possibly growth driven by the natural upgrade and replacement cycles for the tech bought early in the pandemic and the normalization of tech innovation,” added Barry.
Tech Investments
The retailer plans to reap the benefits from their optimization efforts, including leveraging technology and AI within multiple areas, including significant product fulfillment, omnichannel operations, and reverse supply chain.
Best Buy has started to deploy virtual agents to simplify complex customer and employee interactions while also providing data that can be analyzed to enhance future capabilities. Innovative routing capabilities are also being tested to optimize in-home operations, reducing the wait time for delivery and installation services for customers and the overall cost.
Virtual agents now respond to 40% of customer questions via chat, and the retailer is seeing high customer satisfaction levels through the initiative.
“As we think about our growth strategies, we believe we can leverage our scale and capabilities to drive incremental profitable revenue streams,” said Barry. “In this vein, we are exploring Geek Squad as a service opportunities with several large companies, including Accenture, Intel, and Lenovo, as we have created differentiated B2C and B2B services capability.”
The company also announced device lifecycle management, which provides tech devices, including phones and laptops, to employees. Best Buy has begun to support several businesses with this service, providing end-to-end support of company-provided devices, including provisioning, deployment, repair, procurement, and end-of-life.
My Best Buy Memberships
The retailer rolled out My Best Buy Memberships, a three-tier program.
The company says each program offers customers benefits tailored to their budget, technology needs, and lifestyle. The programs include:
- My Best Buy: A free program that provides free standard shipping.
- My Best Buy Plus: Provides free standing shipping and 2-day shipping, member pricing, exclusive access to sales, events, and promotions, and an extended 60-day return window on most products.
- My Best Buy Total: Includes all the benefits of My Best Buy Plus, protection plans, 24/7 tech support, VIP member support, and 20% off repairs.
“We took what our customers told us they value most with their technology and membership, which includes perks like exclusive access to deals and member-only prices, and used it to shape our three tiers with great benefits and more flexibility,” said Patrick McGinnis, SVP of memberships at Best Buy.
"It is of course very early as we only launched the new programs on June 27th, but we are seeing indicators that the program changes are driving many of the results we expect it, including an uptick in year-over-year growth of overall paid membership sign-ups," said Barry on the call. "For example, My Best Buy Total, which is the evolution of our prior Total Tech offer continues to resonate more strongly in our physical stores setting."
