More Lessons From Best Buy
Best Buy’s dominance has always given independent retailers plenty of agita. But it has also provided them with many ideas on how and how not to run their businesses. The company’s recent Q4 report is no exception.
A quick look at the report shows that Best Buy Mobile was one the few bright spots for the company during a rough Q4, with strong revenue driven primarily by connection transactions for phones and tablets. CEO Brian Dunn said the company will continue to focus on that market throughout the year.
Who can blame him? Sluggish sales and razor-thin margins from TVs and other traditional electronics dragged down the company’s quarterly profit 16%. Domestically, Best Buy sales suffered “a low double-digit decline in entertainment hardware and software, as well as TVs, as current consumer demand in new television technologies had not yet emerged as a significant revenue driver,” according to the quarterly report.
That shouldn’t surprise anyone. With about 75% of U.S. homes owning an HDTV, the market is essentially saturated. On top of that, “new television technologies”—3D and Internet connectivity—did little to compel consumers to buy a new set. There are a lot of reasons why, but a good deal of the blame rests with the manufacturers, who did a sub-par job marketing and demonstrating the new technologies.
The demand, however for cellular phones and tablets will remain strong. Best Buy saw “low double-digit comparable store sales increase in mobile phones, driven primarily by an increase in smartphone sales” during its fourth quarter. Best Buy’s share was just the tip of the iceberg. Overall, shipment of Android-based phones hit 67 million in 2010, while Apple sold about 47 million iPhones, according to Gartner. 2011 promises higher numbers.
As our cover story points out, selling smartphones and related services aren’t for every retailer. But it makes sense for some to partner with a third party that does. As we’ve preached in the past, anything that prevents your customer from buying a product (and the related accessories and other add-ons) that fits your competency from a competitor is worth exploring.
We feel even more strongly about retailers’ ability to sell tablets. Best Buy blamed low notebook sales for a single-digit decline in the mobile computing space. That number, though, was “partially offset by tablet sales,” according to the Q4 report. There will be even more opportunities this year, as vendors that are a bit more retailer-friendly than Apple unleash dozens of tablets.
Gartner expects about 54 million tablets sold in 2011, up from 15 million iPads (which dominated the tablet market) last year. Some analysts predict sales to hit 200 million annually by 2014. That’s a big market that retailers can grab a sizeable chunk of. As with smartphones, retailers might want to keep the full solution sale in-house and partner with a third-party that can provide 3G and 4G connectivity.
There’s another lesson to be learned (at least for now) from Best Buy’s Q4: Online sales grew 14% to $2.5 billion year-over-year, while overall revenue grew only 1%. Sure, brick-and-mortar brings in more revenue, but it’s clear to see where the growth opportunities are.
Based on Best Buy’s report, it’s safe to say the company will spend 2011 focusing on smartphone and tablet sales, along with related services; repurposing its stores to de-emphasize mature products (TVs); maximizing the sale of hot technologies; and adding new features and tools to optimize its e-commerce site. That sounds like a good game plan for any CE retailer.