Best Buy Co., Inc.
) had made a remarkable turnaround in 2013 with the stock price
increasing over four fold. However, 2014 began on a wrong note
with the stock crashing 30% in a single day following dismal
holiday sales data and the subsequent trimming of guidance,
raising concerns over CEO Hubert Joly's ambitious restructuring
The company's sales fell 2.6% year over year to $11,451 million
for the nine weeks ended Jan 4, 2014, while comparable store
sales (comps) dropped 0.8% over the same time frame. As per
segments, sales at the domestic segment dipped 1.5% to $9,754
million from the prior-year period while comps fell 0.9%. The
International segment's sales waned 8.1% to $1,697 million but
comps nudged up 0.1%.
The consumer electronics giant held that intense promotional war,
which characterized the holiday season, had significantly
impacted its margins and thus compelled a downward revision in
its operating margin guidance. The company had cut down prices,
at the expense of profits, to compete better with peers such as
Wal-Mart Stores Inc.
Sears Holdings Corp.
Best Buy now expects the operating margin to shrink 175-185
basis points (bps) year over year during fourth-quarter of fiscal
2014. Moreover, tight supply of key products, lower traffic and
weakness in mobile phones category contributed to
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The only silver lining was Best Buy's strong online performance
amid heightened competition from online giants like
). Online sales at the domestic segment rose 23.5% versus 10% in
the prior-year period (nine weeks ended Jan 5, 2013).
The rise of e-commerce could become a potentially catastrophic
event for bricks-and-mortar retailers. Amazon has metamorphosed
the way consumers used to shop, and the company's performance
over this holiday season bears a testimony to it.
E-retailers have the biggest advantage of not maintaining any
stores and as a result command a better pricing technique without
denting margins. Bricks-and-mortar retailers falter on this
ground as prices can be lowered only at the expense of margins as
seen in this holiday season.
Additionally, the competition that Best Buy faces from the retail
bellwether, Wal-Mart is a concern. This multinational retail
corporation hosts practically everything under one roof, which
leads to a highly effective pricing mechanism.
With changing retail techniques, Best Buy has also adopted varied
tools to fit itself in the race of survival of the fittest. It
has made significant progress in enhancing online sales,
inventory management and supply chain execution. Moreover, the
company extended its "buy online - ship from store" endeavors to
more than 400 outlets.
Moreover, it has reduced an additional $45 million in costs
annually, thereby bringing the total cost savings generated to
Further, entering into fiscal 2015, CEO Joly has increased focus
on the company's turnaround. To enhance Best Buy's performance,
Joly stated the need for aggressive cost cuts, prioritization of
online sales growth and improvement in multi-channel strategy.
Joly was appointed the CEO in 2012. Since then, he has closed
several non-core operations, reduced staff and simplified the
organization structure to run the company more effectively and
reinstate its former glory.
On the flip side, Joly's restructuring strategy that is seemingly
on the right track, has failed to deliver the desired results as
reflected in the dismal holiday sales. Hence, it is not easy to
comprehend the situation at Best Buy at present until we get a