Why Best Buy Is Set to Soar

Changes to Best Buy Co. Inc.’s (NYSE:BBY) strategy could catalyze its financial performance and lead to a successful stock recovery.

The technology-focused retailer is investing heavily in improving the customer experience. In addition, a revamped omnichannel offering allied to a cost-reduction strategy could boost its sales prospects at a time when retail sales growth has been mixed.

Having fallen 1% in the last year versus a 10% rise for the S&P 500, Best Buy appears to offer good value.

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Improving the customer experience

By improving the customer experience, the company could boost overall levels of loyalty, leading to an increase in its Net Promoter Score, which rose over 300 basis points in the most recent quarter. Investments in staff training contribted to this performance as employee engagement scores were high and staff turnover fell to a record low.

Further investments in its staff, as well as in the services it provides, is being undertaken. For example, the company launched its Total Tech Support service, which provides customers with unlimited support for all their technology needs. It now has over 1 million members.

In addition, the In-Home Advisor program offers free consultations, differentiating the company from its peers. This has led to higher revenue per order versus in-store sales. Best Buy plans to expand the number of advisors, which currently stands at 300, to 530.  A number of tools are also being added to improve their productivity.

New opportunities for growth

The acquisition of connected health services provider GreatCall is a new growth area for the business. Its integration has been successful as the company has launched pilots with a number of managed care organizations. Best Buy will use its technology offering to further expand GreatCall’s economic moat in what is a highly competitive and fast-growing market.

Investments in Best Buy’s omnichannel offering include supply chain transformation, which could strengthen its competitive advantage. It is focused on an increased use of technology and automation in order to expand its fulfilment options. This is set to increase delivery speed, while providing customers with greater choice in terms of collecting in store within one hour or having home delivery. It now offers same-day delivery on a wide range of items in 40 metro areas, while the recent expansion of its distributor center has improved the quality of its installation services.

Risks

The outlook for retail sales continues to be uncertain and could negatively impact Best Buy’s revenue growth prospects. Recent U.S. retail sales figures have been mixed, rising 1.3% in total over the last eight months. Coinciding with a slowdown in retail sales has been a shift in consumer attitudes toward the replacement of mobile phones. Due to higher prices and a lack of innovation, consumers are delaying the purchase of new mobile phones. In Best Buy’s most recent quarter, this offset growth in areas such as gaming and wearable technology, with the downward trend likely to continue over the medium term.

In response to the potential pressure on sales growth, Best Buy continues to improve its efficiency. It has been driving cost cuts in recent quarters, implementing over $250 million in annualized reductions over the last two years.

Best Buy expects to offset a decline in mobile phone sales through growth opportunities in new technologies such as 8K televisions. It also expects new technology innovation in wireless power, security and accessibility to provide it with growth catalysts, shifting resources to segments where innovation is taking place at a rapid pace.

Here's the outlook…

Full story at GuruFocus