Despite $1.3 billion in fourth quarter 2012 e-commerce sales, Best Buy Co. still has a ways to go to in its effort to effectively compete against retailers like Amazon Co. Inc., analysts say.
The consumer electronics and appliance retailer said today it posted $1.3 billion in e-commerce sales for the quarter ending Feb. 2, an 11.2% increase over the fourth quarter the year prior.
That suggests Best Buy’s online sales in the prior-year quarter were approximately $1.17 billion. However, the retailer did not provide an online sales figure for that quarter in this release or when it reported fourth quarter financial results last March.
In the fourth quarter, Best Buy stores began matching the prices offered by competing local retailers and select online retailers. It was an effort to stem “showrooming,” the practice a shopper going to a store to test out merchandise and then searches the web for a better price.
Consumers like the program, and it has improved Best Buy’s credibility among consumers, Hubert Joly, president and CEO, told analysts during an earnings call this week. The impact on profit margins has been minimal so far, he said, but costs of the program may increase as it becomes permanent and covers most product categories. Best Buy announced last month that it had made the price-matching policy permanent, and expanded it to cover the prices at 19 e-commerce sites.
“We’re focused on growing online as well as expanding the profitability of online,” Joly said. With the goal of having similar profit margins for its online store and its bricks-and-mortar stores, Best Buy will look to improving the value and conversion rate on online transactions. Namely, the retailer will work on making it easier for consumers to buy Best Buy services online, and making better use of recommendations, he says. Best Buy offers Geek Squad computer repair services in its stores.
“Joly is certainly headed in the right direction, but the war is not going to be won on price alone,” says Paula Rosenblum, an analyst at RSR Research LLC, a retail industry consulting firm. “Best Buy has to set up its customer service across all channels to rebuild its brand. In other words, you can no more beat Amazon at its own game in cyberspace than you can beat Walmart at its own game in terrestrial retailing. You have to redefine the experience,” she says. “That’s the long-term challenge.”
But the Best Buy brand recognition, as one of the last national consumer electronics retailers, could be an asset, suggests Erik Gordon, a business and law professor at the University of Michigan.
“It’s early in the e-commerce game for them, but they could be the monster in the consumer electronics category because their brand is instantly recognized, they are trusted and customers could do returns at stores,” Gordon says.
Best Buy attributed the Q4 2012 online sales growth to better-than-expected results from several marketing initiatives. Online sales of tablets, mobile phones and accessories were particularly strong, Best Buy says.
That online Q4 growth was at a slower pace than the 25.4% in Q4 2011, perhaps because of a sparse selection of new products. “The downdraft was caused by the lack of product excitement, in a sector driven by excitement, not by replacement cycles or needs, coupled with a price match policy taking dollars off the top line,” Gordon says.
Best Buy, which in November laid out a five-point plan to boost e-commerce sales, did not provide the amount of e-commerce sales for its 2013 fiscal year, which ended Feb. 2 and thus encompasses most of 2012. But, in the third quarter the company had $431 million in web sales. That pegs Best Buy’s e-commerce sales for the last half of the year at approximately $1.73 billion.
For the year ended Feb. 2, Best Buy, No. 11 in the Internet Retailer Top 500 guide, reported:
- Sales of $49.61 billion, a 0.86% decrease from $50.04 billion for the year before.
- A net loss of $249 million, an improvement from a $1.32 billion loss a year earlier.
- Same-store sales fell 1.7%.
In the 2013 fiscal year, Best Buy closed 49 stores and expects to close five to 10 this year. Best Buy also said company founder Richard Schulze submitted no offer to buy the company by the Feb. 28 deadline. He initially inquired about doing so in August.
For the fourth quarter, Best Buy reported:
- Sales of $16.71 billion, a 0.24% increase from $16.67 billion.
- A net loss of $409 million, besting a $1.82 billion loss a year earlier.
- Same-store sales increased 0.9%.
E-commerce sales accounted for 7.8% of overall sales in the quarter.
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