Best Buy, under Hubert Joly’s run as CEO, defied the odds and became one of the great turnaround stories in recent retail history. Ever since he left, it appears that the turnaround seems to be continuing…but the question is: Is it turning the opposite direction?
Impacted by factors both within and outside of its control, the big consumer electronics retail chain has most recently reported disappointing results while introducing a number of new initiatives that may or may not be consistent with its core merchandising strategy. At least one of them seems to directly contradict one of Joly’s core principles.
Of course, operating in a better economic climate for purchases of big-ticket items – TVs, computers, major appliances – that are at the heart of what Best Buy sells wouldn’t hurt.
Many retailers are getting caught in the consumer’s shift over the past few months out of their homes and back into travel, vacations and other services. This moves away from the frenzy for goods that made the pandemic era such a goldmine for retailers selling products for home use.
How many apparel retailers have expanded into home – and how many home stores have gone into apparel? Many of them found it’s not a fit when it comes to buying, in-store displays and when unaligned merchandise turns into markdown strategies. It’s certainly not as easy to pull off as it may look on a spreadsheet.
That at least partially explains Best Buy’s dismal first quarter when same store sales declined 8 percent and overall revenue dropped about $1 billion from the previous year to $10.6 billion. First quarter earnings in the meantime dropped to $341 million from $595 in 2021. What’s more, the retailer stated things are going to be worse than its earlier forecast for the balance of its current fiscal year. It’s predicting a 3 to 6 percent decline in comp sales, compared to its prior guidance of a 1 to 3 percent decline.
“We’re seeing some increased signals of concern,” is the way CEO Corie Barry (who succeeded Joly in June of 2019) put it to analysts in discussing the results. And while that same concern is being voiced by other big box retailers like Walmart, Target and Kohl’s, Best Buy’s results seem especially troubling.
Is Picking Up a Good Pick-Up?
Barry has announced a number of new initiatives since taking over to try to slow down any declines. The results aren’t clear yet.
In May, the company announced a new program that would pick up and dispose of large electronics and major appliances…for a price. For $200, it will take care of up to two such items. Best Buy has had a free disposal service for small items like laptops and mobile phones and says it is the largest recycler of e-waste products in the country. It also picks up old products when they are replaced with new ones purchased at the store.
Still, $200 is a hefty charge for such a service, particularly when many states and municipalities offer this kind of pick-up service for free. According to a published report, citing the Electronics TakeBack Coalition, 65 percent of the U.S. population is covered by a state e-waste recycling law. In most states, the manufacturers pick up the tab.
Are New Categories the Right Fit?
Over the past several years the retailer has broadened its merchandise mix to take it beyond consumer electronics, moving into health and wellness products, outdoor furniture, and home workout items. The health and beauty devices include facial steamers and an at-home tool for microdermabrasion…assuming you are confident as your own dermatologist. These tools come following earlier expansions into home gym equipment, barbeque grills and even scooters and mopeds.
The outdoor furniture push is the result of it buying Yardbird last November, a backyard furniture supplier. Most of these product extensions would seem to play to the at-home staycation and wellness trends that were all the rage during the pandemic. Yet this focus seems to have trailed off dramatically as America moved out of its hibernation and started to venture out for travel and entertainment.
Best Buy is far from the first specialty chain to move beyond its core merchandise mix. In fact, the retailer successfully expanded its kitchen appliance business several years ago. But for many retailing companies moving into merchandise classifications that don’t necessarily sync up with its prime business it can be a problem. Think about it: How many apparel retailers have expanded into home – and how many home stores have gone into apparel? Many of them found it’s not a fit when it comes to buying, in-store displays and when unaligned merchandise turns into markdown strategies? It’s certainly not as easy to pull off as it may look on a spreadsheet.
When The Robin Report interviewed Joly – now a Harvard Business School professor – earlier this year in January, he talked extensively about how important the people who worked at Best Buy were to the company’s turnaround. “All of this was people-centric, it was our people that were in control of our turnaround,” he said. “We had to create an environment for our people. There’s an old saying that if you pay peanuts, you get monkeys. For the past 50 years frontline workers have not been treated well. At Best Buy the starting wage is $15 but that’s not just the answer. During this period people are calling the Great Resignation, you need great recruitment. The key thing is empathy, listening to people. We say to create a future that doesn’t exist, yet we’ve got to shape that future. And people are critical for that turnaround.”
People were perhaps the defining element of Joly’s turnaround plan, but since his departure his successor has taken a different tact when it comes to company employees. In February 2021, as sales were booming for Best Buy and the entire home products sector, the company fired 5,000 fulltime workers, replacing them with 2,000 part-time employees. Best Buy said this reflected the ongoing shift to online sales and that it simply needed fewer workers in its stores. Those remaining staffers were asked to multitask, not just work the sales floor but help with order fulfillment and a variety of non-sales functions. At the time CEO Barry told analysts the moves were made to allow employees to “flexibly work across all our channels.”
Maybe so, but obviously the employees impacted by these changes didn’t see it this way. One former worker discussing the reduced number of salespeople on the floor told Retail Dive at the time, “You can’t have good customer service when you barely have any customer service reps.” Another employee who stayed on said, “It seems like a self-fulfilling prophecy that people won’t want to shop with us because they’re making that experience as miserable as possible.”
Joly has been supportive of his successor, saying in The Robin Report interview, “I’m proud of Corie (Barry) and I’m cheering for her from the sidelines.” Nevertheless, the retail graveyard is full of companies that reduced their workforces significantly and/or replaced full-time, knowledgeable employees with part-timers who didn’t know the store’s products as well and were less effective dealing with shoppers. In fact, Best Buy doesn’t have to look too far to see a glaring example: its former prime competitor, Circuit City, went out of business years ago following a similar move to eliminate higher-paid salespeople with part-timers. It wasn’t the only reason, but it was a big one.
The Retail Dive story makes the same point, writing, “Retailers such as Guitar Center, Toys R Us and former Best Buy rival Circuit City all made cuts to fulltime staff to save money, to their detriment.” That same analysis raises the fundamental question: “If you’re just competing with online sales,” Chris Tilly, professor, and department chair of urban planning at University of California, Los Angeles, asks, “what is the difference between Best Buy and Amazon?”
It remains to be seen how all of these changes will impact Best Buy in the longer term. Certainly, the retail environment, which had been so beneficial to companies selling home products but has now turned against it, will be a big factor. But as we’ve seen in the financial results from most of the big retailers in the country over the past few weeks, a sinking tide is not beaching all retail boats.
As disappointing as the news has been from Best Buy, its stock has fared relatively well, especially compared to other retailers who issued down numbers. It’s still well off its 52-week high but then again so are most retail stocks.
We all are indeed spending more time out of our homes, especially compared to the bottom of the pandemic era. But at night we still come home to our giant flat-panel TVs and enormous refrigerators. The only question is where will go when we need to buy new ones? Will Best Buy still be the best place to buy them? And will there be anyone working there who can answer our product questions?