Best Buy's Turnaround Has Some Teeth
Best Buy is having a torrid time in 2014 with its shares down 35%. The company has been beaten down as a result of competition from the likes of Amazon.com. However, Best Buy has been making notable moves in recent quarters in order to turn around its business. It has given smartphone companies like Sony, Apple , Google, and Samsung space to sell their devices. In addition, it is methodically looking to reduce costs by way of its Renew Blue program.
As such, Best Buy deserves a closer look to see if it is a turnaround candidate.
Targeting a turnaround
Best Buy has struggled to post good results due to a drop in retail traffic, incremental investments in structural and promotional pricing, and the negative impact of its new credit card agreement. Meanwhile, an increase in product-related warranty costs and lower rates on mobile service plans have also hurt the company. However, Best Buy's focus on its efficient cost-savings program and an impressive growth of 25% in the online business in 2013 indicate that the company is moving in the right direction.
Best Buy is looking to improve its performance through concrete steps such as enhancing the customer experience. Under its Renew Blue program, Best Buy is focusing on several initiatives such as accelerating online growth, improving the multi-channel customer experience, and lowering costs to increase supply chain efficiency. Moreover, Best Buy is trying to boost revenue and gross profit by enhancing store-space optimization and merchandising.
Best Buy knows that in order to stay relevant in today's world, it needs to improve the experience that it offers to online customers. So the company has been bringing many improvements to its website by adding a new search engine, offering relevant recommendations, and providing product and price information to help customers find products they wish to purchase.
Furthermore, through strategies such as implementing a new field and store operating model and strengthening its talent base in key areas such as e-commerce and personalized marketing, Best Buy is trying its best to execute a turnaround.
Moreover, Best Buy's supply chain should be one of its primary growth drivers. It has a powerful network of strategically located distribution centers which has enabled it to introduce its ship-from-store initiative. If an item is out-of-stock online, Best Buy's physical locations will fulfill the order. If the item is not present at a Best Buy store, its distribution centers will fulfill the order.
The company has extended this facility to all 1,400 of its locations and eight distribution centers. It expects this move to enhance delivery times at a low cost. As a result of this move, Best Buy has been able to slash its delivery time by two days.
Focus on profitable products -- smartphones
As far as in-store initiatives are concerned, Best Buy is working on stocking more profitable product categories such as mobile phones and tablets. As a result, it has entered into partnerships with big names in the mobile devices industry.
For example, when Samsung launched the latest Galaxy S5 smartphone, Best Buy ran an offer wherein a customer could get the device at virtually no cost if they traded in a working smartphone, depending on the value of the traded-in device. The retailer offered a credit of up to $200 to customers buying the Galaxy S5.
Sales of the latest Samsung flagship have been impressive thus far as the device has already hit 10 million in sales. Looking ahead, since Samsung expects to sell a total of 360 million smartphones this year and 35% of them will be high-end devices, the Galaxy S5 should be able to sustain the momentum. Since the U.S. is one of the world's biggest smartphone markets with 120 million phones sold last year, strong sales of the Galaxy S5 will bode well for Best Buy.
As Apple is reportedly going to launch its next iPhone in August, Best Buy will probably see yet another catalyst coming its way. Apple sold close to 60 million iPhones in the U.S. last year. With the launch of a bigger-screen device expected, these numbers could rise if the device becomes a hit as analysts expect.
Samsung and Apple together accounted for two-thirds of smartphone sales in the U.S. last year. As Best Buy has partnerships with both of them, it could end up selling a lot of devices this year given the sales projections for both devices.
Best Buy is progressing in the right direction. The company is shoring up the supply chain, focusing on profitable items such as smartphones, and seeing rapid online growth. As a result, investors could consider betting on Best Buy as it looks like a turnaround in the making.
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The article Best Buy's Turnaround Has Some Teeth originally appeared on Fool.com.Amal Singh has no position in any stocks mentioned. The Motley Fool recommends AAPL, AMZN, and GOOG. The Motley Fool owns shares of AAPL, AMZN, and GOOG. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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