By Khadeeja Safdar
Best Buy Co., the electronics giant left for dead a few years
ago, is bucking America's retail slump by turning its cavernous
stores from a potential drag on its business into a way to fend off
Amazon.com Inc.
The company Thursday reported a slight increase in quarterly
revenue, surprising investors who were bracing for a decline.
Online sales jumped 23% in the U.S. from a year ago, accounting for
$1 billion of business in the quarter and offsetting in-store
declines.
Best Buy shares surged 21% Thursday to $61.25, setting an
all-time high and marking its largest percentage gain since January
2001.
It is a reversal for a company that five years ago was
struggling with plunging sales and dwindling profit as consumers
browsed at brick-and-mortar stores but made purchases on Amazon and
other websites, a practice called "showrooming." Some investors
remain skeptical, with more than $2 billion in short interest, or
bets that the share price will decline, according to research firm
S3 Partners.
The company's modest growth stands apart in an industry that has
struggled with declining mall traffic and a glut of traditional
stores. Retailers are on pace to close a record number of stores
this year and several are being liquidated in bankruptcy court. Two
of Best Buy's competitors, RadioShack and hhgregg Inc., recently
filed for bankruptcy protection with plans to close hundreds of
stores.
While Best Buy has closed a dozen large stores and 40 smaller
ones during the past year, it continues to operate 1,600 locations
in North America and is increasingly able to use them to build up
its e-commerce business. About half of its online orders are now
either shipped or picked up from its stores.
"The stores continue to be a great asset for us," Best Buy Chief
Executive Hubert Joly said on Thursday. "They're a great asset from
the standpoint of the customer experience on the more complex
categories or experiences, and they're a great asset from a
shipping and logistics standpoint."
To fend off digital competition, Best Buy gave up efforts to
charge consumers more in stores than online. It promised in 2013 to
match online competitors' prices and brought its prices in line
with Amazon's -- a move that has paid dividends now that shoppers
can instantly check prices on their smartphones.
The price guarantee made a loyal shopper out of Anton Robinson,
a 34-year-old lawyer in New York City. He buys his music equipment
from Best Buy because he prefers to test products in person and
doesn't have to compare prices. "I want to know what a speaker
sounds like," he said. "And I know the price point is going to be
there."
Now many other retailers, including Target Corp. and Wal-Mart
Stores Inc., are rushing to lower prices and use their stores to
fill online orders. Best Buy "ripped the Band-Aid off early under
this management team," said Seth Sigman, an analyst at Credit
Suisse. "They quickly came to the realization that sharper prices
are the future."
Best Buy also found a way to get more out of its giant stores.
The company eliminated much of the floorspace once dedicated to
DVDs and other media and has given it to brands such as Samsung,
Verizon and Microsoft, which both pay rent and provide staff with
expertise.
The chain benefits from selling higher-margin electronics and
appliances at a time that traditional sellers like Sears Holdings
Corp. are struggling. On Thursday, Sears reported that domestic
comparable-store sales decreased 12.4% in its latest quarter,
partly due to declines in home-appliance sales.
For the quarter ended April 29, Best Buy reported revenue of
$8.53 billion, up 1% from the year-earlier period. Profit fell to
$188 million, or 60 cents a share, down from $229 million, or 69
cents a share, a year ago, which was boosted by a $183 million
legal settlement.
In a call with analysts, Mr. Joly said cellphone sales "were
better than we expected" in the quarter thanks to unlimited data
plans launched in February by Verizon Communications Inc. and
AT&T Inc., which prompted shoppers to visit stores. Sales rose
late in the quarter as U.S. consumers received tax refunds that had
been delayed.
Best Buy got a boost from the release of Nintendo Co.'s new
console, the Switch. It was released in limited quantities after
its March debut sending shoppers to stores in search of the $299
gadget. Target executives said earlier this month that Switch
helped it achieve its best quarterly electronics sales gains in
three years.
Sales from the device helped struggling retailer GameStop Corp.
post a 2.3% comparable-sales increase on Thursday, bucking
analysts' expectations for a decline. "We are selling everything
that we get our hands on," GameStop Chief Executive Paul Raines
said in an interview.
Mr. Joly has been adding services, such as technical support and
the company's Geek Squad repair services, to lessen Best Buy's
reliance on new gadgets or televisions. On Thursday, he said Best
Buy plans a nationwide rollout of in-home advisory services, in
which consultants will visit consumers to field technology
questions.
"Having these conversations in the home unlocks all sorts of
discussions with the customers," Mr. Joly said. "There's some needs
that people never talk about in the stores."
--Maria Armental contributed to this article.
Write to Khadeeja Safdar at khadeeja.safdar@wsj.com
(END) Dow Jones Newswires
May 26, 2017 02:47 ET (06:47 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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