Has Best Buy entered a retail death spiral?

Q1 Earnings 2023

Best Buy is up 4% after posting earnings May 25 for their Q1; profit per share was an adjusted $1.15 per share versus an expected $1.11. Total revenue missed at $9.47 billion versus a $9.52 billion expected.

CEO Corie Barry said as shoppers face higher prices for housing, food and fuel, they are making trade-offs by buying some items and skipping others causing the miss in revenue. She elaborated:

Best Buy has been trying to find new sources of revenue, most notably online is their Totaltech membership program:

The death spiral?

So why might Best Buy be entering a death spiral? Best Buy keeps coming up short with both its overall strategy since COVID and even its execution at times.

Best Buy’s Total Tech program

Take the Totaltech program – there is no consistent branding – it seems unlikely they even made a brand guideline for this program. This makes it harder to catch a customer’s eye cross channel and looks unprofessional. They have capitalized “Totaltech” different ways on the same page.

Beyond that when you dig into the reviews of Totaltech, Best Buy has chosen to co-mingle a bunch of product reviews making it impossible to tell what people actually think of the program. It is also a bit hard to imagine given the marketing materials and the benefits are focused on already engaged customers that this program will add much revenue to the top line.

Online sales are being snatched by the competition

Online sales drove roughly a third of the company’s revenue in the U.S. in the first quarter, Barry said. That share has been steady over the past two years and it is twice as high as pre-pandemic, she said. Stores are essential to these online transactions, even as more customers shop online about 40% of online purchases got picked up in a Best Buy. Still only 60% of Best Buy purchases are delivered in 2-days or less.

The trends have been down for a while and Best Buy is not reacting

1. The online purchase trends are terrible for Best Buy – they are getting their clocked clean by other retailers who are flat or growing in the electronics space. From a YoY perspective the above revenue numbers were an 11% decline and the profit 28.45%! That seems like a retail business that is out of control. Add to that they have already cut deeply, more than 5,000 employees post COVID and the story for Best Buy starts to look bleak unless they can fundamentally change their sales trends. At its peak Best Buy employed 125,000 workers and it is now down to 90,000.
2. Best Buy is not doubling down on its most valuable transactions – in store pickup. If almost half of your orders are picking up in a store you should be discounting to get even more people to pick up in store at checkout and giving those customers who pickup a second coupon immediately to use in store every time. If Best Buy did these 2 things they would increase 2-day delivery and likely revenue per customer as electronic purchases are frequently needed immediately.

Best Buy’s tech stack is overloaded and slow. Best Buy is under investing in its eCommerce framework and it shows – its less a matter of opinion than just testing the UX on the site. While Best Buy’s website has tons of features – many users will never deeply interact with their website because its too slow. I took a random product page from their deals page, and they failed core web vitals for live actual customers and in a simulation:

Best Buy is slowing down its website and giving away its customers with huge web ads

As a retailer enters a death spiral it grasps deeply at 1. layoffs 2. selling or leasing existing real estate 3. finding new revenue streams. Best Buy is doing 2 out of 3 when it lets huge ads to external electronics retailers show on its product pages like this:

Best Buy is exhibiting classic signs of a struggling retailer entering a death spiral

Best Buy may not be the next in the line of retailers finding themselves out of step but they are looking remarkabley similar to Bed, Bath, & Beyond, Circuit City, Sears, and many others. Depending on Best Buy’s real estate position and their moves over the next 3-5 years we will either see a fairly dramatic turn around or an acceleration of a failing company.