The market ate up Best Buy's (BBY) quarterly report on Thursday, sending the shares 7 percent higher on the day. However, even with Thursday's pop, the stock is still trading lower than it was when the year began. Sure, it's also important to remember that the stock nearly quadrupled in 2013. Investors who have owned the big-box retailer of consumer electronics can't complain too much if they've owned the stock for two years.
However, there's plenty riding on Best Buy as we kick off the 2014 holiday shopping season. Let's go over a few of the things that will need to go right to keep the recent positive momentum at Best Buy going.
1. Be a Dot-Com Darling
Revenue climbed a mere 0.6 percent at Best Buy during the third quarter, and it would have been slightly negative if it wasn't for a nearly 22 percent pop in online sales. Clocking in at $601 million, online sales made up 6.4 percent of Best Buy's revenue. It's going to have to keep growing.
Best Buy also said on Thursday that online sales growth will be stacked against last year's results, when the rollout of the Xbox One and PS4 consoles padded sales as early adopters scrambled to order the video game systems.
2. Get Services Back on Track
One of the more surprising setbacks at Best Buy in its fiscal third quarter was a better than 10 percent slide in services comparable sales. Best Buy claims that this was driven largely by lower mobile repair revenue given a decrease in claims, but it also points out that attach rates -- the percentage of people who opt into one of Best Buy's services when making purchases -- were lower this time around.
That's not good. The economy's improving, so it's not as if customers don't have as much money as they did a year ago to protect their purchases. Best Buy also recently introduced a new insurance program for lost or stolen smartphones, expanding the number of offerings that it makes available.
Services are important. They keep customers close with offerings that can't be conveniently duplicated by online merchants. They also keep customers coming back.
3. Navigate the Set-Top Challenge
Selling TVs hasn't been easy lately. Just ask Sony (SNE), which after several years of losses spun off its TV subsidiary earlier this year. On the retail front, the 3-D craze never truly took off, and now the smart television movement is being challenged by a wave of set-top gadgetry.
Roku, Chromecast, and now the Fire TV Stick given anyone with a modern TV the ability to turn it into a streaming machine. There's no need to trade up to a smart television. That's a pretty big deal given the growing popularity of streaming services.
Best Buy is hoping that ultra-high-definition TV, or 4K, will catch on. It has even been expanding the number of stores that have Magnolia home theater design centers. However, consumers still need to be convinced that 4K is worth the investment, especially for those who rely heavily on streaming where connectivity speeds need to improve. This will be a hot category to watch for Best Buy this holiday shopping season. It needs to be a TV star.
3 Things That Could Save Best Buy This Holiday Season
Last year, to build anticipation, a handful of retailers offered sneak peeks of their Black Friday ads several weeks before the official, complete debut. The strategy was successful at generating buzz, so expect to see far more retailers doing the same this year. A few stores to watch out for include MacMall, JCPenney (JCP) and Macy's (M), which leaked its sales via its Pinterest page.
It was around Black Friday last year that Target (TGT) experienced the first of these massive security hacks, but it wasn't the last; then came Neiman Marcus, eBay (EBAY), Home Depot (HD) and more. There's no denying 2014 has been the year of the hack. As a result, both retailers and consumers will be extra cautious this year, guarding their credit card info from would-be thieves. We recommend brushing up on a few crime prevention basics and limiting the amount of times you use your debit card in public.
Good news for online shoppers: The United States Postal Service has slashed shipping costs for select businesses by up to 58 percent, which may inspire more shipping discounts from retailers. But before you celebrate, the new lower prices may backfire and cause the USPS to be overwhelmed this holiday season, especially as UPS (UPS) and FedEx (FDX) prepare to raise their rates. Your best bet -- shop early and keep an eye on those tracking numbers.
Previous-generation streaming devices tend to see the best deals on Black Friday, but this year the market is busier than ever, meaning we could see significant deals on current-generation set-top boxes. Among the newer models to look out for are Amazon's Fire TV and Sony's (SNE) PlayStation TV, both of which debuted at $99 and cater to gamers.
This year we expect to see no-frills 4K TVs hit well below the $999 mark. Leading the charge will be budget TV manufacturer Seiki, which broke all deal records this summer with its $280 39-inch and $429 50-inch 4K TVs. These and other Seiki screens will hit similar price-lows this Black Friday, bringing 4K technology to the masses.
Bargain bin laptops have hit rock bottom. These simple, low-powered machines can't get any cheaper than prices we've seen in years past, which range from $178 to $200. As a result, this Black Friday you're going to see better discounts on mainstream machines, i.e. laptops with Intel's (INTC) current-generation Core processors and a respectable spec sheet. Deal prices on mainstream machines have been steadily dropping since April, with deals already flirting with the $350 range at the start of the fall season.
Despite a crash in sales, tablets are still a hot commodity and expected to sit atop everyone's shopping list this November. With growing competition from Apple, Google and Microsoft (MSFT), it's a buyer's market, which means you can expect more tablet sales this year than there were in 2013. If you're strapped for cash, Windows tablets could offer the most savings since 50 percent of Windows tablet sales this year have been Editors' Choice deals.
Traditionally, the best toy deals appear in mid December, just before Santa's big debut. However, last Black Friday week saw more toy deals than ever before, beating out every week in December in terms of Editors' Choice deals. While it's hard to predict what might happen this year, one thing is certain: If you have toys on your shopping list, you won't want to sit out this Black Friday.