After a slew of less-than-optimal earnings reports and dismal sales, Best Buy was all but dead to investors a year ago. Their main issue, they were being undercut in every regard by ecommerce sites offering more products at a lower price than even Best Buy could, according to an article in TIME.
Now, a year later, Best Buy seems poised to make a comeback, spurred by new CEO Hubert Joly’s turnaround plan announced last winter.
From the article:
Credit Suisse retail analyst Gary Balter maintains that Best Buy is turning its massive store base — until very recently viewed as a liability — into one of its biggest strengths. The first step is to move away from the “bigger is always better” philosophy that has long dominated the retail industry. Best Buy is closing many of its locations and moving into smaller spaces with a more focused selection of products.
Joly is also leveraging his store space through partnerships with Samsung and Microsoft to create “stores within a store” across the country. Under these agreements, Samsung and Microsoft rent out space within a Best Buy to prominently feature their most popular products. The strategy should improve profitability not just through rent receipts, but also by driving sales of products elsewhere in the store.
Best Buy is also beginning to leverage its more than 1,000 locations by increasingly shipping merchandise from stores to online customers. This strategy can improve chances that an online customer will find an item in stock, and allow stores to sell returned items to online customers, two outcomes that should help the firm improve its profit margins.
Finally, Best Buy is investing in improvements to its Web business more broadly, with the hope of making its website more user-friendly and improving search functionality. Best Buy’s website receives more than a billion visitors per year, but only 1.3% of those end up purchasing a product. Balter explains that if these investments bring that conversion rate up just one percentage point, it would mean roughly $250 million more per year in operating income.