19 Jan

Can Best Buy continue to weather the storm?

WRITTEN BY Sharon Bailey

Retailers continue to streamline

Consumer electronics retailers have been struggling to survive over the past few years due to the extraordinary growth of online retailers such as Amazon.com (AMZN). These retailers have also been affected by lower consumer spending due to difficult economic conditions and competition from large discounters such as Wal-Mart Stores (WMT) and Target (TGT).

Best Buy (BBY) and its peers are aggressively implementing restructuring initiatives to take back market share. Some of these initiatives include cost-reduction measures, online business expansion, and the sale of underperforming stores. Best Buy and its peers are part of the SPDR S&P 500 ETF (SPY).

Can Best Buy continue to weather the storm?

New product categories

The Consumer Electronics Association, or CEA, anticipates that emerging consumer electronics product categories will grow by 108% in 2015 compared to 2014. These are some of the new technology categories:

  • 3D printers
  • 4K ultra-high-definition televisions
  • connected thermostats
  • unmanned systems such as aerial vehicles
  • IP (Internet protocol) cameras
  • wearables – health and fitness devices, smartwatches, and smart eyewear

The emerging categories are expected to contribute about $11 billion toward overall consumer electronics revenue in 2015. Currently, these categories represent less than five percent of the entire industry.

Online retailers continue to be a threat

Amazon and other leading online retailers continue to be a major threat. According to the U.S. Census Bureau, online sales accounted for 6.6% of total retail sales in the third quarter of 2014. Online sales increased by 16.2% to $78.1 billion in the third quarter of 2014.

Key initiatives

Although conditions improved for Best Buy in the third quarter of fiscal 2015, the road ahead still seems difficult. Best Buy reported same-store-sales growth of 2.2% in the third quarter of fiscal 2015, in contrast to the first two quarters in which same-store sales were in the red.

The company is trying to combat difficult conditions by reducing costs, pricing competitively, optimizing stores, and enhancing distribution. The store-within-store partnerships it has with suppliers like Samsung are expected to drive more store traffic. Best Buy’s online channel growth also looks promising.

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