Best Buy’s CEO Has a Plan to Combat Amazon

May 24, 2016, 8:23 PM UTC
Company Signs
Best Buy Huntington Beach, CA
Photograph by Diana Haronis — Moment Editorial/Getty Images

It’s hard being Best Buy (BBY) these days.

The lack of exciting new products in the mobile phones and tablet categories, along with plummeting television prices are making it hard for the electronics retailer to do better than report stagnating comparable sales.

In its most recent quarter, U.S. comparable sales, which include e-commerce and sales at stores open at least a year, fell 0.1%, better at least than the 1.2% decline Wall Street analysts expected, according to Consensus Metrix. The results showed how Best Buy, which only four-years-ago was widely believed to be destined to go out of business, has managed to hold its own against the likes of (AMZN) and curtail shoppers’ habit of browsing in its stores, then making purchases online elsewhere.

At the same time, with its biggest categories under pressure — the Wall Street Journal reported that computers, mobile phones and accessories account for nearly half of Best Buy’s revenue, and sales of those categories fell 3.5% in the period — Best Buy is having to redouble its efforts to give shoppers a reason to come to its stores as electronics are coming to be seen by many consumers as commodity products. (That weakness was mitigated by strong sales of wearable electronics like Fitbits and a 14% jump in appliance sales.)

And Best Buy CEO Hubert Joly acknowledges that flat comparable sales are hardly a performance that will ignite investors’ love. As Joly sees it, the growing complexity of tech and interconnection of devices people use, gives his company a golden opportunity to prove its usefulness to consumers as Best Buy looks to return to growth.

“The pace of innovation (in tech) is very extraordinary but for the customers it’s a bit confusing knowing what to buy,” Joly told Fortune in an interview on Tuesday. “There is a growing gap between what technology can do and what we as consumers understand what technology can do.”

To bridge that gap, Best Buy making changes in many parts of its business. In addition to more training of store staff, the retailer is beefing up the capabilities of its Geek Squad army of tech specialists who visit some 5 million homes a year to offer tech support. (Joly told Wall Street analysts that Geek Squad had increased its interactions with customers in the last year.)

Best Buy has ramped up its smart home offerings, along with services to help customers with installation and getting the most out of it. Growing demand for home theaters is also a potential boon. Best Buy is betting that the expertise consumers can tap in its stores in terms of product advice or help connecting the various components will give it an edge over online-only Amazon.

Other examples: earlier this month, Best Buy said it would become the first and only U.S. retailer where customers can try out Oculus Rift virtual reality headsets in stores at the Intel section of 48 of its locations. In recent years, Best Buy has enhanced special areas for key tech companies, including Apple (AAPL), improving presentation and service to really get people into stores.

What’s more, Best Buy has invested in its website to make sure it keeps online sales rather than see them drift to Amazon. Online sales rose 24% last quarter, one of the best performances in retail. (Best Buy generates about $4 billion online a year, according to eMarketer.) Best Buy Chief Financial Officer Sharon McCollam, credited with helping Joly’s turnaround plan in the last few years in part by helping cut costs, improve shipping times for online orders, and overhauling its stores, is leaving next month, news that played a big part in Best Buy’s big stock decline on Tuesday.

Still, Best Buy faces a tough slog with large chunks of its business facing tepid demand. The retailer is looking to contain costs without compromising training staff and improving stores to keep its turnaround going. As if to prove that point, Best Buy forecast an adjusted profit of 38-42 cents per share for the second quarter, below the 50 cents per share analysts expected, according to Thomson Reuters I/B/E/S.


Despite all that, Joly is getting a lot of credit on Wall Street for at least having a playbook.

“Best Buy wants to be the place that makes it easy for consumer to understand tech,” Joly said.

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