All but given up for dead a year ago -- when it was fighting against shrinking revenues, bad publicity, and crushing competition from industry rival Amazon -- Best Buy appears to have found a second life.
The embattled electronics retailer posted results on Tuesday that shocked most long-time observers, including a huge jump in quarterly profit that totaled over 20 times last year's earnings from the same period. In the New York Stock Exchange, shares of the company jumped nearly 13% from a day before to $34.65 each, reaching levels not seen since 2011.
Of course, the chain isn't out of the woods yet. Notably, the firm's credit is still rated as "junk" by credit-rating agencies Standard & Poor’s and Fitch. While it's too early to call Tuesday's earnings results a real turnaround, the figures are certainly a positive step.
So how did Best Buy manage the upswing? Best Buy's Tuesday call with investors offered some insight:
Ruthlessly Letting Go
Best Buy CEO Hubert Joly has led a personnel bloodbath inside company headquarters, cutting 400 jobs over the past year. Besides the firings, the company aims to slash millions off the cost of products sold by improving logistics and tightening the returns process. Best Buy is taking aim at store occupancy costs, and moving away from what CFO Sharon McCollam described during Tuesday's investor call as "very, very lenient” extended warranty programs. When compared to last year, the company has saved $390 million in expenses over the past nine months, it announced Tuesday.
Declaring Open War on Amazon
When the company first announced it would match the price of online competitors on its website -- a move aimed squarely at lower-cost competitor Amazon -- some analysts believed it was a mistake. But the strategy has allowed Best Buy to boost its website sales more than expected, and the company reported Tuesday that online sales were up 10.2 percent over the past quarter.
"The sales number is even more impressive considering Best Buy's entirely new website won't launch until 2014, leading me to believe that price matching, and advertising of price matching, is closing the price perception gap with Amazon," Belus Capital Advisors CEO Brian Sozzi told USA Today.
While the “store within a store” concept has been disastrous for other retailers, it's been a dream within a dream for Best Buy, which said Tuesday that Samsung-branded sections have been a huge hit with consumers.
“The customers really appreciate the live displays, that you can actually touch and feel live product, which is not the case for other types of stores,” CEO Joly said during the conference call.
The company plans to roll out a similar concept of Windows-branded sub-sections within 500 stores.
Cracking The Whip On Backroom Employees
For one of the nation’s most well-known retailers, Best Buy has a surprising amount of slack in its supply chain that the company could optimize. A major thorn in the firm's side so far has been handling product returns, which cost the company $400 million per year. Best Buy says it's using improved "reverse logistics" to cut that figure down.
One initiative the company is rolling out involves connecting a select number of store backrooms to the company’s website, so they can supply products that are available at specific physical sites but out of stock online. The company estimated Tuesday that this initiative could boost online sales by 2 to 4 percent.
Dangling Shiny Things In Front Of Consumers
A year ago, most retail experts were scratching their heads trying to figure out how to counter “showrooming,” the practice by some consumers of going to stores to see and test electronic products -- and then going back home to buy them for less online.
Best Buy seems to have turned that weakness into a strength, embracing the fact that having stores work as showrooms attracts curious shoppers. To that end, the company said Tuesday that it's promoting the fact that ultra-high-end televisions, ranging up to $15,000 in cost, are available at its stores. The idea is to have customers come in to gawk at the state-of-the-art products they could never afford, with the hope they will buy something else while in the store.
“I think all of us can be excited by these shiny new objects,” CEO Joly said Tuesday.
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