Sales of consumer electronics, home office equipment, and appliances helped Best Buy (BBY +2.09%) power through the pandemic, but now with many viewing the COVID outbreak increasingly in the rearview mirror, the home electronics superstore needs to convince shoppers there's a reason to return to its stores.
It believes it's found one in expanding its product offerings to include categories like healthcare, beauty care, patio furniture, and mobility devices such as e-bikes and scooters. And though we knew this was the path Best Buy was taking after acquiring U.K. telehealth start-up Current Health and outdoor furniture retailer Yardbirds last year, it still marks a serious departure from its core competency.
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The detour resurrects memories of other times it went beyond its comfort zone, such as when it bought a record store chain, acquired the peer-to-peer download site Napster, and went all-in on mobile phones.
While there was at least a nexus to consumer electronics for some of these ventures, that upside doesn't really exist in the new direction Best Buy is heading. The retailer could be making another big blunder that once again diverts resources away from what it does best.
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Heading off on a tangent
Best Buy is seeing the strong winds whipped up by the coronavirus tail off. Revenue is forecast to drop around 3% this year, while profits are expected to drop 10% from last year. Comparable-store sales that had jumped over 10% this past year on top of a near-10% gain in the previous year are now forecast to fall between 1% and 4% in the coming year. Reviving growth is a top priority.
To do so, Best Buy is basically going to label all its new businesses "technology" and say it has experience in that. On last quarter's earnings conference call, Best Buy Health president Deborah DiSanzo pointed to several statistics showing healthcare was penetrating the home more, saying, "Best Buy has long proven we're a trusted advisor for technology in the home."
But like the old Esurance (which is owned by Allstate) commercial says, "That's not how it works. That's not how any of this works." While consumers may trust Best Buy's Geek Squad for advice on connecting their big-screen TV to their surround-sound system, seeking out the electronics retailer's staff for answers on healthcare issues is not going to happen.
Companies that are solely dedicated to telehealth, like Teladoc, are finding navigating these waters choppy at best, so the idea a consumer electronics firm will make a dent seems unlikely. It also highlights there is no shortage of competition in any of these areas, and from companies that are larger and more focused on the service or product offered.
Image source: Best Buy.
Staying in its lane
There certainly are avenues to pursue in these areas, even in healthcare. Blood pressure cuffs, personal emergency response devices, and even fall protection devices are ancillary products that could find a home in its stores and online because they're a natural extension to its primary business, as could perhaps some beauty care gadgets it's selling, like wrinkle reduction light therapy devices.
Similarly, Best Buy's partnerships with grilling and outdoor cooking brands Weber, Ooni, and Traeger can readily be seen as an extension of its appliances business, for which it is the third-largest retailer behind Lowe's and Home Depot with a 12% share.
But then Best Buy starts thinking about how patio furniture can let it extend its reach beyond the living room, kitchen, and home office into a consumer's backyard, and there are suddenly a bunch of straws just out of reach that the retailer is trying to grasp.
Because Yardbirds is an online-only business, you're not going to see patio tables and umbrellas in Best Buy stores, but it's still a diversion of time, attention, and resources away from what the company knows best.
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Focusing on customer service
Where Best Buy's biggest potential arguably lies is through its Totaltech member program, which promises to be a headwind for profitability initially but should pay dividends down the road. Rather than an a la carte selection of options, Best Buy offers all services for a single price (the a la carte option is still available for nonmembers).
It seems to be proving popular as Best Buy has signed up over 1 million new members since launching last October, and Totaltech could become a major growth center for it. Because the company isn't nickel-and-diming members, it takes a hit initially but should see that offset by volume growth over time.
Focusing on the customer has always been a Best Buy strong point, and it's at least a better option than simply branding everything "tech" and thinking that lets it participate in venues far afield from the consumer electronics retailer's strengths.
