Consumer electronics retailer Best Buy (BBY 1.09%) is banking on services to drive its growth. The company sees itself as not only a seller of technology, but a trusted advisor to its customers. Part of this plan involved a partnership with smart-home company Vivint. The two companies teamed up about a year ago, putting hundreds of Vivint employees in Best Buy stores to help customers design, buy, and install smart-home systems.
That collaboration now appears to be on the rocks. Bloomberg reported on July 10 that Best Buy was rethinking the partnership. The in-store Vivint employees were reportedly let go in June, and Vivint products are no longer available in Best Buy's stores, according to Bloomberg's sources.
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A minor setback
Best Buy didn't directly confirm or deny these reports when asked for comment by Bloomberg. Instead, Best Buy spokesman Jeff Haydock said, "We are continuing to work with Vivint on ways to better help our customers explore, learn about and buy the latest smart-home products and services."
Bloomberg's sources said that Best Buy's salespeople and Geek Squad technicians may take over smart-home setups, and Vivint employees could still be involved in those installations. Vivint didn't respond to Bloomberg's requests for comment.
It's not clear what went wrong with this partnership. It may have simply underperformed Best Buy's expectations. Despite this setback, Best Buy's focus on smart-home products and services is unlikely to waver. The company's main advantages over online sellers of consumer electronics are its physical stores and its trained employees able to help customers. Best Buy is going after the broad swath of consumers who want smart-home devices, but don't know where to start.
An opportunity-rich environment
"Best Buy is operating in an opportunity-rich environment driven by technology innovation and the customer's growing need for help," said Best Buy CEO Hubert Joly in the company's 2018 letter to shareholders.
As part of Best Buy's plan to grow its services business by helping customers solve problems, the company launched its In-Home Advisor program late last year. The service provides free in-home consultations where one of Best Buy's more than 350 In-Home Advisors suggests products and services for a particular project. That could involve new appliances, a revamped home theater, or a smart-home setup.
The company is also rolling out Total Tech Support, a subscription service that provides 24/7 support in store, at home, by phone, and online, regardless of where the subscriber bought the product.
With the Vivint partnership being scaled back, Best Buy will need a new strategy for selling customers on smart-home packages in-store. Best Buy could go it alone, or it could partner with another company. Best Buy will report it second-quarter results in August, and the Vivint partnership will likely come up during the conference call.
Growth ahead
It's unclear how much of a revenue hit Best Buy will take by moving away from the Vivint partnership. When the deal was announced, Joly said that the revenue ramp would be gradual as it was rolled out to stores. And if the partnership is being scuttled because it under-performed, the revenue hit may be inconsequential.
In the longer run, Best Buy expects its earnings to grow substantially in the coming years, driven in part by its services push. The company sees non-GAAP earnings per share as high as $5.75 in fiscal year 2021, up from $4.42 last year. That's a compound annual growth rate of about 9%, not bad at all for a big-box retailer in the age of e-commerce.
Smart-home products and services represent a major growth opportunity for Best Buy. As a Best Buy shareholder, the failure of the Vivint partnership is certainly disappointing. But given Best Buy's track record since Joly took the helm in 2012, I have no doubt that the company will eventually find the right smart-home strategy.
