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Analysis: Best Buy’s customer service makes it a destination for many

On the surface, Best Buy’s overall sales figures look disappointing – with both enterprise wide and domestic revenue tumbling over last year. However, all of this is down to one less week of trade over the prior year. The comparable sales numbers remove this effect and reveal a much healthier 3% uplift.

Putting the calendar anomalies to one side, the slowdown across the year is noticeable. Although the growth numbers produced were still respectable, the final quarter was, at least in growth terms, the weakest in Best Buy’s fiscal year by far. From our analysis, there are a couple of reasons for this.

Firstly, the technology line up over the holiday period was far from blockbuster. Innovation in phones and other mobile devices like tablets was weak. Connected devices, such as smart home products, were better but the category is becoming more mature. And bigger ticket items like televisions and appliances were in something of a steady state. Much of this is outside Best Buy’s control, but it meant wowing consumers with compelling products over the festive period was challenging. Against this backdrop, the company’s results are fairly impressive and a testament to its brand strength.

The second issue was that demand cooled a little over the final quarter of the year. Although the consumer was still in fairly good spirits, this did not translate into a significant uplift in spending on electronics. In our view, Best Buy did better than most players in the sector in securing spend, but its growth figures were nonetheless affected by the slowdown.

Given the reliance on technology companies to develop compelling products, Best Buy will always be subject to factors outside of its control. Unfortunately, on this front we do not believe the technology outlook is good. Too many of the mainstream tech firms are focusing on incremental improvements which are inconsequential to consumers and unlikely to generate significant growth. Against this backdrop, Best Buy needs to pull out all the stops to secure the little growth that is generated, as well as pivoting to parts of the market that offer better prospects. Fortunately, we are optimistic about the company’s ability to do both of these things.

Despite the growing dominance of Amazon, we believe that Best Buy remains a very credible player in the market. Its customer service makes it a destination for those wanting to learn more about technology and devices – something that is particularly helpful in attracting older and less tech savvy shoppers. Meanwhile, its easy to use online proposition, including the very efficient ‘buy online, collect from store’ service, is helping to pull in younger tech enthusiasts who want to make immediate purchases.

Best Buy has also been quick to pivot to new areas. Stores have strong offerings of growth categories like wearables and smart home, which is helping to take the edge off the declines in more traditional segments like mobile devices. However, Best Buy is also thinking beyond products by moving into technology services. This is a major part of the company’s future plans and it increases our optimism for medium to longer term performance.

Overall, despite some of the negative headwinds in the consumer economy and the electronics sector, we remain positive about Best Buy’s prospects. The company is well managed and run and has a clear vision around how it will connect with and sell to consumers over the next few years.
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