Best Buy tones down expectations, but analysts dial them up
ST. PAUL -- Best Buy enters the holidays wearing a stern face, citing weakness in the consumer-electronics industry. But analysts aren't entirely buying the act. Many see some consumer trends moving in Best Buy's direction, coupled with smart dec...
ST. PAUL - Best Buy enters the holidays wearing a stern face, citing weakness in the consumer-electronics industry.
But analysts aren’t entirely buying the act. Many see some consumer trends moving in Best Buy’s direction, coupled with smart decisions that have positioned the Richfield, Minn.-based retailer for a pretty decent holiday.
If things do turn merry for Best Buy, it would be a welcome change. The consumer-electronics giant has been something of a serial disappointer in recent holidays. Last year may have been its worst yet.
After entering the 2013 season on the rebound, executives were dismayed when weak holiday sales sent Best Buy shares into a tailspin, wiping out nearly $4 billion in market value on a single, gruesome January trading day.
This time around, executives are accentuating the negative. Best Buy’s 2014 holiday sales? They’ll be down, CEO Hubert Joly warned in August. Overall industry sales? Down, too.
But what of hot new electronic devices, from sleek Ultra HD TVs to buzzed-about smart watches and the iconic iPhone 6?
Joly praised the innovation, but suggested it wouldn’t move the needle much this year. Analysts were puzzled.
“Shouldn’t one look at some of these trends and have a bit more of a constructive outlook?” asked Morgan Stanley analyst Simeon Gutman.
The Consumer Electronics Association seems to think so. It predicts the industry’s 2014 holiday sales will rise 2.5 percent. That’s hardly a return to the giddy years of the 1990s - but unlike last year, at least it’s positive.
“There was much discussion around those remarks Best Buy made, and it was clear that Best Buy was trying to manage investor expectations,” said Steve Koenig, the association’s director of industry analysis.
Keri Spanbauer, a senior equity research analyst at Thrivent Financial, appreciates Best Buy’s conservative guidance.
“There is obviously some strength in certain product categories,” she said. “The iPhone launch was very strong, videogaming continues to be strong with the new products that were launched last year, GoPro cameras seem to be doing very well.
“Best Buy is not guiding to any real contribution from the 4K TVs,” Spanbauer added. “TVs are such a big part of Best Buy’s business that if we could get a new product trend going in TVs, that would be very meaningful to them.”
‘There’s definitely momentum’
The company’s fortunes are carefully monitored in the Twin Cities, where many thousands of local jobs rise or fall with its results. That was driven home in the past few years, when Best Buy’s four-decade-long growth phase came to an end, then reversed, leading to painful job cuts and a cloud over its future.
Today the company’s outlook has stabilized. And fortunately for Best Buy, some of the hottest holiday categories are ones where it looks strong.
* Giant TVs. Buying a colossal TV is a perennial holiday favorite, and the rise of the dazzling Ultra HD TVs, also known as 4K, shows early signs of emerging as the next big thing.
Best Buy already dominates the high-end TV space. It doubled down by partnering with TV-makers Samsung and Sony on a fleet of more than 800 stores-within-a-store, each highlighting the stunning new 4K sets.
Thanks to those partnerships, Best Buy appears to be the only mass retailer that displays dozens of 4K sets that boast four times the resolution of regular high-
definition screens and often run $1,500 or more.
Stephen Baker, technology analyst at NPD Group, forecasts that 4K TVs will exceed everyone’s expectations this holiday. That plays to Best Buy’s strength.
“Most of the growth in TVs have been in big screens, 55- 65-inch, those kind of screens,” Baker said.
“If you’re going to spend $1,500 on a television, maybe you want to see it in person first,” said Baker, noting the contrast with online-only merchants. “That’s clearly been Best Buy’s value proposition.”
“This holiday for Best Buy in particular, there are a number of innovations that people are going to want to see in person,” said Koenig, the Consumer Electronics Association official. “Whenever we’re dealing with emerging tech, consumers want to get their hands on the devices. The consumer experience is very tactile.”
Joly, Best Buy’s CEO, did tell analysts he’s “excited by the potential” of 4K TVs. He just thinks the future is down the road a bit. And it’s true that 4K TVs are still new, with not much content yet available.
Given that, “The impact this year will still be rather limited,” Joly said.
* Cutting-edge tech: Best Buy’s fortunes rise and fall on cool innovation in the consumer-electronics sector. Earlier this year, Baker felt consumer interest in this year’s lineup was a bit soft. But the industry watcher is rethinking.
“I think the momentum today looks better than it did two months ago, absolutely,” Baker said. “I did a webinar back in the beginning of August, and I was pretty bearish. I’m a little more bullish now. There’s definitely momentum now.”
Some successful launches have lifted the mood. But so has growing interest in emerging technology that draws curious shoppers, from smart watches to 3D printers to connected-home devices.
Best Buy stresses this in its newest vendor partnership with Intel. In 50 Best Buy stores, Intel is featuring 3-D printers - where shoppers can print a model robot - and glimpse Augmented Reality gaming.
In August, Joly noted that what’s moving online are “the more commodity type products (that are) simple to buy” - prompting stores to refocus on higher-end, “higher-touch products.”
* The tried-and-true: What tech do holiday shoppers crave? The industry says the five most popular gifts have a familiar ring: tablets, laptop computers, televisions, smartphones and videogame consoles.
Baker, the NPD analyst, predicts that with so many retailers selling these familiar items, holiday markdowns will be widespread.
“On a unit basis, I think it’s going to be a pretty good holiday,” Baker said. “I expect the customer to be in the store and buying stuff, and in pretty substantial numbers compared to last year.
“But Best Buy said - and we believe it, too - that it’s going to be a very, very promotional and very, very aggressive on the pricing side, and that’s going to make it difficult” for retailers to turn a profit.
Here too, Best Buy is fighting back with vendor partnerships that offer broad selection and advice from specialists. Its Apple store-within-a-store carries the full line of Apple products. Its Windows stores have a large selection of notebooks and laptops.
* Rivals. Best Buy has had its ups and downs in recent years, but then, so have its rivals.
RadioShack, the other nationwide consumer-electronics brick-and-mortar retailer, is fighting for survival, and its share price has plunged to the $1 level. RadioShack sells a lot of portable electronic devices in malls. Increasingly, Best Buy does too, with its growing fleet of Best Buy Mobile stores.
Sears, which has dominated the appliance business for decades, also is in a fight for survival. Sensing an opportunity, Best Buy has pushed hard into the appliance business and has been gaining market share.
Amazon remains the king of the online retailers, by far the fastest-growing segment of retail. But one of Amazon’s most powerful advantages - sales-tax free shopping - has mostly eroded away.
Of the 21 most-populous states, including Minnesota, Amazon now collects sales tax in all but three. In mid-2012, the ratio was reversed; Amazon collected sales tax in only three of those same 21 states.
* Focusing on basics: Best Buy spokesman Jeff Haydock ticks through a list of upgrades the retailer has made since last year’s holiday season.
It’s making a big push to showcase gifts under $25 or under $15, both online and in its stores.
It’s pulling together Connected Home products like smart thermostats, security cameras and smartphone-controlled lights.
It’s rolling out fashion accessories like designer cases for iPhones and iPads.
It’s updating its “wearables” displays, which feature fitness products including smart watches.
So in ways large and small, Best Buy is working toward a happier holiday. But you won’t hear executives crow about it yet.
The Pioneer Press is a media partner of Forum News Service.