RSSBest Buy has a pleasant Q4; now, about that customer service...
By Angela Gunn | Published March 26, 2009, 5:22 PM
The fourth quarter was a better period than expected for electronics retailer Best Buy, which on Thursday reported net earnings of $570 million -- down 23% year-over-year, but above expectations and mid-quarter guidance, and sufficient to precipitate an EPS of $1.35.
Seriously, in this economy? According to the company, store sales were indeed down by nearly 5%. But that was offset by revenue gains from new store openings (seriously, in this economy?) and an improvement in the gross profit rate. And, said outgoing CEO Brad Anderson, the quarter finished stronger than it began -- so much so that previously enacted inventory reductions came back to bite them, as eager customers found inventory shortages on wanted products.
(Pause. Your writer would like to interject another note into these proceedings, stating that on Consumerist's currently running Worst Company In America 2009 competition, Best Buy is a strongly seeded #8 and neatly trouncing T-Mobile right now for the (dis)honor of being anointed the nastiest business in the US. And we're talking about a bracket that pits the likes of AIG and Peanut Corporation of America -- before the quarterfinals.)
The company reported a jump in its domestic market share, up 1.2% to almost 22%, thanks to new store openings, the demise of competitors such as Circuit City, and sales of high-ticket items such as notebooks and flat-panel televisions.
Incoming CEO and current COO Brian Dunn credited much of the uptick to in-store employees, who are sticking around in droves: "Despite the tumultuous times, our employee retention metrics have been incredible," improving to 44% turnover from nearly 70% two years ago. (Your reporter's confused: Are there a lot of people out there responding to the tight job market by quitting the job they have?) "An engaged, experienced employee," said Dunn, "is more likely to create a great customer experience."
Dunn also waxed poetic about the gains in customer share, saying the rise "represents millions of individuals with names and families and dreams that we now have the opportunity to engage with and support." He also stated that customer satisfaction scores were up 150 basis points over last year, spotlighting in particular improvements at Best Buy Mobile, which even he admitted has been compared by customers to going to the dentist.
(Did we mention that the company's on the cusp of a class-action lawsuit in New York for not only fudging their "price match" policy, but is documented to have awarded bonuses to employees who ignored or derailed claims? Internal Best Buy documents guide employees in ways to avoid honoring the offer; the stores under scrutiny denied over 100 requests each week.)
Dunn is not oblivious to Best Buy's reputation, but where he goes he sees improvement. On the call he told a charming story about an unannounced visit he made to the Best Buy in Pflugerville, Texas (northeast of Austin -- it's where they film Friday Night Lights, for all you TV fans) where the shelves looked great, the employees were friendly and knowledgeable, and the manager has turned down repeated transfer offers to stick with the store and the city he knows best. Likewise, he acknowledged that the death of Circuit City provides, "candidly, another crack at getting back customers we have disappointed along the way, who've left the brand over time."
Brad Anderson, who's leaving the CEO spot after seven years, gave a spirited long-view overview of the company's position, touching on such disparate topics as Windows 7 (which is impressing him), whether or not there was anything new at this year's CES (there always is, but it's not always obvious), the perils of commoditization, how Best Buy aims to succeed at internationalizing where so many other tech businesses have failed, and the benefits of the company doing its own sourcing and, increasingly, its own manufacturing.
The Q4 gross profit rate was 24.6%, up year-over-year from 23.7%. Some of that is based on Best Buy Europe, which sells a lot of high-end mobile phones, and some is creditable to stronger sales in home theater and computing gear. That doesn't include notebooks, which are actually a low-margin proposition for Best Buy. CFO Jim Muehlbauer noted that the company met many of the goals it set for itself on the Q4 2008 call a year ago, including those concerned with customer service, outlay, and growth.
For the fiscal year just ended on February 27, GAAP earnings per share worked out to $2.39, down from $3.12 for fiscal year 2008. The company offered a bit of guidance on that front, predicting for FY 2010 an EPS range of $2.50 - $2.90. The company expects, as Muehlbauer put, it, "a year of volatility," with per-store sales declines ameliorating in the latter half of the year.
Best Buy sued over price-matching denials
24/03/09
http://www.cdfreaks.com/...e-matching-denials.html
"A lawsuit alleging deceptive price-match practices at Best Buy stores will proceed under Class Action Certification in New York State, a US District Court judge ruled last week.
We recently covered HDGuru's own struggles with price matching at Best Buy, and now the website breaks this story, reporting that New York state residents can join plaintiff Thomas Jermyn in the class action suit. In a complaint, Jermyn alleges that Best Buy uses its price match policy "as a ploy, to lure unsuspecting consumers into its stores and to induce them to purchase its merchandise, while allegedly having an undisclosed 'Anti-Price Matching Policy,' pursuant to which employees aggressively deny customers’ legitimate price match requests."
The complaint is backed by internal documents, dispositions from two current Best Buy employees and claims from former employees that the retailer promoted an anti-price-matching policy among managers and other key personnel. Best Buy allegedly taught employees how to deny price matches, offered financial incentives that were partly based on this practice and overall denied roughly 100 valid price matches per week, the complaint says.
There appears to be a proverbial smoking gun in HDGuru's story, in which a member of Best Buy's Competitive Strategies Group makes light of shoddy price-matching practices in a company memo, but the validity of this document is in dispute. A commenter -- whose IP originates from Best Buy headquarters, HDGuru notes -- accused the website of "selective editing" and "poor journalism." Best Buy also tells Ars Technica that the memo's author is a "long-standing employee with a sense of humor."
Michael Braunstein, the attorney representing Jermyn, encourages people interested in joining the lawsuit to contact him at mbraunstein@kgglaw.com or (845) 356-2570. He'll also listen to complaints from people outside of New York, though they can't participate in the suit.
On Monday, Connecticut Attorney General Richard Blumenthal said the state is considering its own lawsuit over price-matching. The Hartford Courant, which reported that story, has a copy of the full New York complaint available as a .PDF file" (at the following link).
http://blogs.courant.com...ass%20Certification.pdf
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|The one trend that I think really hurts Best Buy's future is their overly high dependence on Media/Software. According to their Q4 report 21% of their revenue was derived from that category in the domestic market. Within 5 years most of that media will be purchased via the Internet not in a brick and mortar store and BBY isn't well positioned to keep most of those customers. Although BBY like most store doesn't make much profit off selling CDs and DVDs it does help them drive foot traffic into the stores.
If they don't start redirecting more of their store space to items like big screen TVs and other items that are relatively expensive to ship relative to their cost they are going to start having some real problems within 2-3 years.
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|Gotta take issue with your solution...
"...Directing more of the foot traffice to big screen TVs" is NOT going to help them for 2 reasons!
Large screen TVs are not impulse buys. And "Foot traffic", if it is LOOKING for a big screen TV can likely find them! Its not a matter of directing folks to TVs.
And newsflash! The artificially driven forced march to digital driving the buying spree is all but over. Soon there will be no more compelling reason to look at TVs then there is for a new washer and dryer. TVs are commodities once more.
I suspect that we will soon be seeing BB sales slowing significantly as they compete in the same market space as the other large format appliance stores.
And to take this further, I suspect that BB will have trouble in the forseeable future.
Look at each of their product centers.
Large appliances...sure they sell some, but how excited do you get thinking about a new washer and dryer or stove? These items sell primarily as replacement items...not impulse or vanity purchases...well, except for the few of you foe whom a new vacuum is a vanity purchase to impress all of your friends!
Car audio? That area is on the downward slope in sales.
Miscellaneous electronics - table radios, alarms, etc...Sure they sell a few...
Cameras - like TVs, a hot item over the past few years as digital cameras came into their own, and I suspect they will remain so for a bit longer. But with chains like Wolfe and others going under, I think this sellers market is becoming saturated like the cell phone market before it and sales will decline and consist primarily of replacements and churn. It will cease to be as hot a market.
Computers. Well, we already see the casual users opting for more netbooks - and I would expect this market share to be increasingly dominated by marketshare cannibalism betwen the cellphone/smartphone/netbook market. And at the expense of the PC market - despite the new i7 and Phenom CPUs offering excellent performance/price gains over the previous generation Core2Duos and Quads.
And CDs and DVDs...I WISH there was more of a compelling reason to go to BB for them! As well as wishing the market segment was more robust and that there was more material worth buying! Besides, you can beat BB's prices online.
And home theater? Another market driven at least in part by TV sales, but which is tailing off as the majority already have bought a system. And for which many at BB have been satisfied with ProMedia and Logitech systems for their primary use! (scary indeed...)
Video games? Again, not a hot growth area, but there will be some continued sales.
Which leaves what market focus for BB to look to for growth? Overpriced snacks ($1.49 for a 16 oz Coke?!?!?) and phone and CD accessories????
I don't see a significant ongoing growth area for them inside the stores driving sales. All of the recently hot product niches are either entering the downward side of their lifecycle or are already mature markets primarily satisfying the need for device replacements...
None of which can be good signs for that market.
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|"'...Directing more of the foot traffice[sic] to big screen TVs' is NOT going to help them for 2 reasons!"
Your attempt to paraphrase my comments failed miserably. 'Foot traffic' and 'floor space' are not synonymous! So your comment on big screen TVs seems irrelevant to what I actually stated.
The success or failure of Best Buy won't be heavily dependent on appliance sales as they account for ~4% of revenue. Had you actually read the press release you would have realized that appliance revenue fell 20.5% after a 6% decline the previous. It might be a good time to for BBY to get out of that market since it seems unlikely that that market for appliances is going to be recovering anytime soon.
While there are very few segments of the consumer electronics that are growing there is a consensus that the shrinking market for CDs isn't just a temporary blip due to the weak economy. Redirecting floor space currently dedicated towards CDs towards an expanded home theater department or more overpriced computer components will probably be more profitable in the long run.
I am under no illusion that BBY's future is bright. It is going to be a tough market for all consumer electronics resellers for the next 2-3 years. The question is whether they are going to make the change necessary to adapt to the changes in the market to not just survive the recession but come out of it in a strong market position.
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|"If they don't start redirecting more of their store space to items like big screen TVs and other items that are relatively expensive to ship relative to their cost they are going to start having some real problems within 2-3 years."
Nope. But then you fail to understand the greater underlying problems in the market independent of the current economy.
Even with a robust economy, they would be in trouble.
And TVs are not the answer for anything, but then you obviously are oblivious to the iSuppli and other industry projections that have been spot on for the last decade.
ALL of their product mix cash cows are either reaching or have reached their apex and are on their downward slope! NONE of the profit centers are projected to be growth areas - EVEN IN A ROBUST ECONOMY!
And I love how you try to focus on appliance sales, as you demonstrate that you have missed tha LARGER point. The fact is, ALL of their heretofore profit centers are heading the way of appliance sales due to their position in the market development lifecycle!!!
NONE of their products are projected to show an increase in market activity, regardless of what the economy is doing! The cell phone, home theater, TV, appliance, computer markets are all mature and effectively saturated. The days of vigorous sales that accompanied the early growth period typical of an emerging market are long past!
The hilarious aspect is that you seem to think that it is ONLY CD and appliance sales that are experiencing market shrinkage, when in fact, all of their current product mix is experiencing the same decline in market activity, being replaced by churn and NOT new customer growth.
But then, we wouldn't want you confused any more than you already are.
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|The hilarious part is your arguments don't seem to prove your points very well and you seem ignorant of that fact.
Just because a market is mature doesn't mean it can't be profitable. There are plenty of examples of mature industries where there are numerous companies that are very profitable. Jewelry and high end fashion seller typically have very high margins but products haven't changed that much over time. Most any changes are usually small variations on existing products but their is a market for them and people buy them. Just because the consumer electronics industry doesn't mean BBY or another company with semi-competent management can't make a profit reselling those products to customers. In fact BBY did do that last quarter. Had you read their Q4 report(which you obviously didn't) you would have noted they had net earnings of $570 million out of $14.274 billion.
Your point in regards to there being little growth in the computer, appliance, and cell phone markets has been true for many years now. Despite that fact BBY has managed to continue to make profits in those markets. By your logic BBY should have seen tremendous reductions in both profits and revenue long before the economy started to slow down. The HDTV market will see some improvement once the economy improves because there are still millions of people that don't have a tv with a built atsc tuner let alone one of the larger 1080p panels. The large demand for government subsidies on digital tuner boxes should be good evidence of that fact.
Yet again you mis-characterized my statements. I never stated that only appliances and cds were going down. Your statement that appliances and CDs are experiencing the same decline is also false. Entertainment Software(CDs, DVDs, video games, computer software) and Appliances declined faster than the other segments they broke down and substantially faster then the over company average. I don't know why but you seem to have a habit of misquoting people to prove your points.
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|LOL! I cited your mention of appliance sales and CD sales as you mentioned them as areas that are declining in sales. They are simply areas that have already reached a point in their market development where sales are not growing. And these are not the only areas!
And HDTV sales will see a boost because “there are still millions of people that don't have a tv with a built atsc tuner let alone one of the larger 1080p panels.”
Fascinating. So your emotional response contradicts market watch firms like iSuppli’s projections that have been right on the money for a decade. They disagree.
I like your analogy regarding jewelry stores. Care to review how many high end jewelry chains have folded? Not to mention Wolfe Camera… And CompUSA and Circuit City. You see, and small factor called ‘demand’ and shrinking market sales volume plays just a small part!
And your idea that after the digital transition that THEN a demand will be created for digital TVs (of which there has been a subsidized program for digital tuners for those who do NOT want to buy a new digital TV – note the desire and choice not to buy a digital TV among those who you say will suddenly WANT a digital TV…)
And EVERY product category in BB is on the downward slope of customer demand.
You place far too much credence in YOUR feelings and you specific examples. My response is not simply in reference to your utterly incomplete SWOT/TOWS analysis. I simply use one or two as a starting point to explore larger business fundamentals.
BB will face an increasingly difficult market, partly as their product lines are increasingly being commoditized and sold at category killer stores like Wal-Mart as well as online for even less money, a better selection, and no taxes. The major profit centers for BB of the last several years have been TVs, cameras and home theater.
But now, an even more important issue is that each of these heretofore lucrative market segments has reached an inflection point in their market adoption lifecycle where they will begin to decline in sales.
And you have failed to address this fact in the marketplace. But your arguement that 'others' have done this (the few that are still in business) despite the rampant problems this market segment is experiencing, ranging from specialty stores to department stores, simply fails to gain traction.
What you have failed to do is to demonstrate why or where these market segments will either remain at the same sales levels or increase in sales!
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|The death of Circuit City, as mentioned here, is also likely to have redistributed a customer base who would normally shop at Circuit City to Best Buy -- so there's validity in that.
And about the link reference to worst company of the year 'Best Buy vs T-Mobile' - I just reviewed all of those 'battles' and I'm not sure where the Consumerist is coming from. Most people voted Best Buy because they'd had nothing but good experiences with T-Mobile and love their G1 phones... other dumb fights were Target vs AIG (One company helping to destroy our economy vs. another that provides a pleasant shopping experience at reasonable prices)... then Wal*Mart vs. HP ... I mean - the reference to that made very little sense. It seems that they've pitted bad companies against good ones and put it up to a vote, which makes very little sense other than turning heads and upping the impressions on their ad displays (similar to the BetaNews article about Firefox's end game -- it's NOT news ... it's NOT an editorial -- it's the journalistic version of showing nude pictures of Rachael Ray -- we look because we are bewildered, and that's about it.)
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|To me, the news here is not the financials but what is (has) become a problem across the retail board (not just techie items) and that is the extremely poor customer service. Whatever business you are in, customer service is one of the most important aspects of a company's job and a lot of American companies have forgotten this cardinal rule. I believe this was part of the rest of the commandments that Moses accidently dropped when coming down the mountain ( I credit Mel Brooks for that last part).
Every company, no matter what field, must earn the customer's loyalty everyday. There is no such thing, for the most part, as customer loyalty. One good experience just gets you to the next day but one bad experience and you have lost a customer.
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|not really.
if the business is the only game in town, then it can basically be and do whatever it wants.
competition is what changes the rules of the game.
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|normally I would agree with you but what has changed is that anything offered by almost any company can also be purchased online. for example, one of my family members lost their cell phone and instead of buying a new one, he bought a used one of the internet for 15$ and it works fine. so, even if you are the only store in a certain area, you still have competition and customer service will determine whether or not that customer keeps coming to your store or goes elsewhere.
Having said that, there might be a few areas that what you say is true but, as far as the U.S., I don't think so.
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|As various Internet based resellers become better known it is getting to the point where no retailer has a local monopoly except amongst immigrants that don't know English very well, a few neo-luddites that refuse to buy anything via the Internet, and the occasional item needed immediately. BBY would do well to ignore the competition at their own risk. If they can't convince people that their customer service provides enough added value to justify the higher cost of buying items there rather than buying it through some Internet reseller they will be joining Circuit City in bankruptcy in the near future.
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|well, lets not forget that best buy also has internet commerce.
so even with this footing, its gains were reasonable.
the advantage that best buy has over other internet providers is location, location and location.
even though internet shopping is popular, there is a large sector of people who do not use a computer and still buy the old fashion way.
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|While BBY didn't break don't what percentage it would reasonable to assume that the vast majority of their business is probably still being done in their brick and mortar stores. Their prices on their website are generally the same as they are in store and the product selection on their website isn't that much larger in many categories than what's available in store. If you have a store nearby there really wouldn't be a compelling reason to buy an item on their website unless that item isn't available at your local store. In addition you would save money on the shipping and you can generally get your item a few days sooner.
The trend towards buying more things on the Internet is going to hurt Best Buy because they don't have good prices and their service is poor.
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|Talk about SPIN!!!!
Earnings are "down 23% year-over-year".
But at least we are still in business!
Its a tremendous success!
Oh, and customer service?...
WHAT customer service?
Earnings DOWN 23% and nearing the top amongst the WORST in customer service!
Why fix something that is such a tremendous success!
What??? Me worry?
Indeed, here's a business model to emulate!
Sorta like listening to the folks who thought we would be OUT of Iraq and Afghanistan by now, champion what a success Obama's NEW policies are as he basically rubber stamps the previously existing Middle East policies and schedules they deemed so heinous and totally unacceptable! You see, the escalation is Afghanistan is really a reduction...
Sorta reminds you of how the net increase in school lunch spending at a slightly less aggressive rate of increase was deemed a cut by the Dems under Clinton...
Yup, the more things change, the more they stay the same!
LMAO!
BN...becoming more superfluous by the story...
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|well why change the current quality of customer service if its quarterly earnings were fruitful?
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|*snicker* There's a theory. But actually Best Buy has been talking about fixing its busted customer-service reputation for a while now; it was one of the goals explicitly stated in the looking-forward portion of their Q4 '08 call, and Anderson's been pretty vocal about making things better.
I respect that. Heck, I support it, and think that a bunch of crazy Minnesotans just might have a leg up on figuring out how to make it happen. (Ever shopped at a big-box store -- a Wal-Mart or a Best Buy, say -- in the Great Plains region? The vibe really is different.) But really, really, really, it's MUCH too early for Best Buy to spend a good quarter of today's call talking about how much better things are. I'm happy for the good people of Pflugerville, I truly am; it sounds like they've got a nice store and a nice workplace there. But I'd invite Mr. Dunn to come to Seattle or NYC for a visit before waxing poetic about the Best Buy experience in 2009.
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|true.
but i'm sure that some of the gains achieved resulted when circuit city dropped out of the game.
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|Oh, absolutely. The company notes the overall decrease in competition in its report, and during the Q&A Circuit City's role was discussed specifically.
So I was talking about this story last night with a friend and he raised a good point [edited to add: as did thx31, above]: ALL of the big-box electronics retailers are pretty lousy at customer service. Circuit City was horrible. Fry's used to be swell but has gotten worse as they've gotten away from geekery and more into TVs and such. And though I've been in some mighty friendly Radio Shacks lately (mirabile dictu) I'm not a fan of the company and how corporate has treated its employees. Wretched situation, and in that I suppose we ought to be glad that Best Buy's leadership at least sees the situation as an opportunity for greatness. I just wish they were a little further down the road before they start trumpeting their arrival.
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|I wouldn't be confident that we will be seeing any major changes in the way BBY does business. The whole customer centricity model has been in place for at 4 years now and at least in my local area I haven't really seen much evidence that the quality of their service has really improved much in the last 5 years.
If BBY were really serious about improving customer service you would see them improving salaries, offering real training rather than the sink or swim attitude that seems to be the norm these days, and some type of performance based pay. It wouldn't have to be terribly expensive. Upping the starting salary $2-3 per hour would give you a much larger pool of applicants to draw employees from. A performance based pay system could take a lot of different forms other from direct commission. You could have a pool based commission, a profit sharing plan where you get a bonus based on how profitable the company is the previous quarter, or maybe you could base it upon some level of demonstrated product knowledge.
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