This Thanksgiving holiday weekend witnessed a dramatic rise in
online traffic on websites of retail majors. The trend is
unmistakable. While e-commerce accounts for less than 10% of
consumer spending right now, it is growing at a much faster rate
than bricks-and-mortar retail. Going forward, we think that any
retail player not having a robust presence in this space might have
to shut shop altogether. Specifically for Best Buy (
BBY
), its decision to invest in the online channel seems to be paying
dividends.
Shoppers took advantage of deep discounts in stores as well as
online. While overall online traffic increased by 3% over last
year, traffic to websites of top retail stores rose by 8% on
average. Black Friday online sales crossed $1 billion for
the first time, according to comScore, which measures online
behavior. The National retail Federation conducted a survey
according to which retailers' sales increased by 12.8% and more
than 35 million people visited retail stores and websites, up from
29 million last year. Online sales this holiday season are
expected to reach $96 billion, a 12% rise over last year. The
survey sample size was 4,005 consumers and the estimated margin of
error was plus or minus 1.6%.
According to Experian Marketing Services, Best Buy was the
fourth most visited retail site on Thanksgiving Day this year, with
traffic exceeding 11 million viewers. The top three spots were
grabbed by Amazon (
AMZN
), Wal-Mart (
WMT
) and Target (
TGT
). Best Buy's online traffic on Thanksgiving was a 104% increase
over its previous day's traffic of just over 5.5 million.
This data doesn't take into account mobile traffic so the
overall figure would be much higher given the extensive use of
smartphones by shoppers these days to compare prices once they are
inside a store.
See our full analysis for Best Buy
This holiday weekend was being watched as a barometer of the
sign of things to come in the next five weeks, given the sluggish
economic conditions and the prospect of tax increases on account of
the fiscal cliff early next year. The burgeoning online sales seem
to indicate robust consumer sentiment. This could be a result of a
nascent recovery in the housing and job markets reviving consumer
confidence.
What Does It Mean For Best Buy?
Best Buy, which reported an unexpected third quarter loss a few
days back, desperately needs a good holiday sales season to recover
its mojo. It has a new CEO at the helm and underwent an
organizational restructuring recently.
With launches of several new smartphones and tablets expected
this quarter, it is hoping to get a bigger slice of consumer
spending on these. Tablets and smartphones have turned into
major gift-giving categories and a lot of people would be looking
to upgrade their systems or devices. Many consumers are
believed to have held back from spending last quarter in
anticipation of new product launches. With competition in this
space being tough among retailers and the gross margins relatively
less, higher volumes are key to profitability. Best Buy has offered
to match prices offered by Amazon and other online retailers within
its brick-and-mortar stores this holiday season. Price matching is
sure to erode Best Buy's margins even further which makes higher
volumes all the more crucial to drive profitability. We are
interested in watching how this plays out.
Will consumers prefer to drive to a Best Buy brick-and-mortar
store to check out products first-hand? Or will they prefer
shopping from the comfort of their couch at home using a smartphone
or tablet? The market data generated at the end of holiday season
will provide some key insights into customer behavior and
preferences and shape business strategies for retailers going
ahead. So far, we haven't had a scenario where online and store
prices are equal. This holiday season will help evaluate what
customers prefer more given equal prices.
We
have a price estimate of around $25 for Best Buy
which we are in the process of revising now that the third quarter
earnings results are out.
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