Why Best Buy’s Pandemic Bounce Fell Short of Target’s
(Bloomberg Opinion) -- Best Buy Co.’s second-quarter sales increase was not quite as booming as those of its big-box store peers. But the consumer electronics giant still belongs in the pandemic-era retail winner’s circle because its growth was, in some ways, harder fought.
The retailer reported Tuesday that U.S. comparable sales rose 5% from a year earlier, a far cry from the greater-than-20% growth reported last week by Target Corp., Home Depot Inc. and Lowe’s Cos. As destinations for groceries and prescription medicines, the likes of Walmart Inc. and Target Corp. kept their doors open throughout the crisis. So, too, did the home-improvement heavyweights. Best Buy, however, moved to close brick-and-mortar stores in the early days of the pandemic, initially using them only for curbside pickup of online orders.
By the time the second quarter started, it had opened only a portion of stores, and customers had to make appointments. It gradually ramped up from there, with almost all stores open for shopping without appointments by late June. That means that for roughly six weeks of the quarter, it was relying solely on e-commerce and appointments to meet customer demand. While its digital sales soared, rising 242% from a year earlier, it makes sense that having brick-and-mortar shopping so restricted for a while kept a lid on total sales. For expensive items such as home theaters, many people are going to want to see options in-person before they buy. The company reported that in the final weeks of the second quarter, when stores had fully reopened, its sales were up 16% from a year earlier. Additionally, sales rose 20% in the first three weeks of the current quarter, though executives don’t expect growth to continue at such a blistering pace for the entire period. That detail about the slowing sales growth sent Best Buy shares down in pre-market trading from their record close on Monday.
Best Buy, of course, benefited from fresh consumer needs and wants borne of stay-at-home lifestyles. As customers needed to build out work-from-home setups or remote learning stations for their children, it reported big sales of computers and tablets. The largest comparable sales growth came from its appliances category. This is a different pattern from the one in the first quarter, when a burst of video game purchases helped offset weakness in other lines of business. While the company said it experienced constrained inventory in certain categories, overall, it reflects well on Best Buy’s supply chain and inventory management strategies that it held up as demand shifted to different areas.
Best Buy executives should certainly view its results with some measure of caution. Some of the sales rung up in the quarter could be attributed to demand that was just pulled forward. In other words, people who would have otherwise hung on to an old laptop until next year might have pulled the trigger on a new one this summer to work more efficiently from home. They should take comfort, though, in the fact that plenty of the increased demand is incremental business. If not for widespread work-from-home orders, people would never have bought some of the desktop computers, printers and scanners that flew off shelves this summer. If not for a dearth of events to keep them busy, they might not have sprung for a projector to watch movies. If not for extensive restaurant closings that are forcing more home cooking, they might not have purchased an extra freezer for the basement.
Given that the unemployment rate is still soaring and Congress is deadlocked on additional relief for workers, it’s worth pondering how Best Buy would hold up if the economy remains weak. Matthew McClintock, an analyst with Raymond James, pointed out in a recent research note that the retailer’s assortment is much more resilient in a recession than it was in 2008 and 2009. Since then, the chain has made a big push into appliances, capturing market share that once-mighty Sears squandered. Replacing a broken dishwasher or refrigerator is not exactly a discretionary purchase, so being a bigger player in that category provides some measure of insulation for Best Buy. Plus, the categories it is better known for, such as computers, tablets and smartphones, feel less like discretionary purchases than they once did. Those items are essential for remote work and are communications lifelines when people are stuck at home.
All of that leaves Best Buy relatively well-positioned to ride out what is sure to be a choppy end of the year for the wider retail industry.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Sarah Halzack is a Bloomberg Opinion columnist covering the consumer and retail industries. She was previously a national retail reporter for the Washington Post.
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