At the end of 2012, Best Buy (BBY -0.11%) revealed its big plan to get back in the game. Titled "Renew Blue," the strategy focused on the core of Best Buy's business with guidance for the future of customer service, leadership, and sourcing. For a year thereafter, the business could seemingly do no wrong. For the first three quarters, sales started to stabilize, margins crept up, and the stock climbed like Edmund Hillary. Then the holiday season rolled in and rolled right over Best Buy.
Now we're halfway through 2014 and the company seems to be climbing back up after its steep fall in January. Comparable sales fell in the company's last reported quarter, but operating margin rose. Best Buy seems to be moving forward, but in a fumbling sort of way. Things continue to be driven by the original Renew Blue strategy, but is that enough to make Best Buy a long-term winner?
Source: Best Buy.
Best Buy's ongoing battle for the Internet
Best Buy doesn't hate the Internet, as it turns out. While the company's biggest threat is clearly Amazon.com (AMZN 1.30%) and its low-cost, easy-delivery game plan, Best Buy is doing well itself. Last quarter, for instance, Best Buy's online sales grew 29%. That put domestic online sales up to $639 million for the quarter, accounting for 8% of total domestic revenue. While it's still a small portion of overall sales, online is a place where Best Buy has room for growth.
The trick will be not falling into the Amazon trap. Best Buy's biggest opportunity online is in its ability to tie together online and in-store sales. Amazon is going to win on price a lot of the time, but Best Buy can win on experience. That's the company's hope, at least, with its Renew Blue plan.
Best Buy is trying to integrate its stores and online business into one piece, and it's doing that through programs like ship-from-store. That service is now available in 1,400 locations, giving customers access to over $2 billion worth of inventory, according to the company.
Is showrooming still an issue?
Best Buy has said that its ship-from-store and price-matching have helped "turn the issue of showrooming on its head," giving customers a reason to buy in-store and still get all the benefits of going back to Amazon. That hasn't turned out to be the case, though, as Best Buy's most Amazon-focused divisions -- consumer electronics and entertainment -- have been some of the hardest-hit divisions.
This is the critical crack in Best Buy's armor -- perception. It may be that Best Buy will match the price you find on Amazon and it may be that you can get the product sooner than if you ordered on Amazon, but unless customers are being told that at every turn, they're not going to know it. Instead, people will continue to showroom, using Best Buy as a convenient place to try before they buy.
Here's where the Renew Blue strategy ends up being make-or-break. Between now and the holidays, Best Buy needs to convince customers that there is value in a face-to-face relationship, and it needs to educate them about its pricing and shipping options.
Renew Blue's No. 1 goal is to "reinvigorate and rejuvenate the customer experience" through digital growth, membership programs, and customer service. Those all need to be supported by customer communication, letting shoppers know what they can expect in-store and how they can take advantage of Best Buy's offerings.
So far, the company's marketing has been hit and miss. Traffic across the retail sector has been down, but Best Buy has been able to shore its customer visits up through some promotional marketing. In order to thrive, though, it needs to get customers coming through the doors because they already know that they can get good prices and fast shipping. Right now, Best Buy isn't there, and time is ticking down until it will be too late.
For investors, there's a lot to like about Best Buy's position, but an almost equal amount to worry about. I'm optimistic that the company can leverage some high-profile movie and video game releases this summer to get word-of-mouth fired back up before the holidays start in earnest. That's optimistic, though, and there's a distinct chance that Best Buy can't make it work. Keep an eye on the company's next release in August, and look out for foot traffic indicators, as they will be key to this business thriving in the future.
