Best Buy (BBY) has had a hard time over the past couple years. While the company did manage to cut its annual loss down to $409 million from $1.82 billion a year earlier, revenue has been flat for the last two years, staying stubbornly at $50 billion.
With numbers like that, a change in strategy wasn't just called for -- it was necessary.
An End to 'Showrooming'
Best Buy rose to the challenge. After years of struggling with customers who would browse stores in-person only to complete purchases online, Best Buy initiated an end to "showrooming" back in the first quarter. Effective March 3, "Best Buy will price match all local retail competitors and 19 major online competitors in all product categories and on nearly all in-stock products, whenever asked by a customer," according to a February 15 press release.
"With a Low Price Guarantee, our customers will have the best of both worlds when they shop BestBuy.com or come to a Best Buy store. They will get unbiased service from our Blue Shirts and support for the life of their product while also knowing they have a Low Price Guarantee on nearly every item. This guarantee is available on BestBuy.com, at more than 1,000 Best Buy big box stores, more than 400 Best Buy Mobile stand-alone stores in the United States, as well as on the telephone."
The retailers Best Buy is willing to match include Amazon.com, Apple.com, Bhphotovideo.com, Buy.com, Crutchfield.com, Dell.com, Frys.com, hhgregg.com, HP.com, HomeDepot.com, Lowes.com, Newegg.com, OfficeDepot.com, OfficeMax.com, Sears.com, Staples.com, Target.com, TigerDirect.com and Walmart.com, in addition to price-matching its own website, BestBuy.com.
Simplifying as a Solution
It has been too soon to see just how effective Best Buy's end to showrooming will be -- it hasn't been a full quarter since the changes went into effect -- but the electronics retail chain is not stopping there. The company has also decided to simplify its operations.
Best Buy is pulling out of Europe, and by extension its deal with U.K.-based mobile-phone chain Carphone Warehouse (CPW.LN) to launch a joint venture, dubbed Best Buy Europe. The former sold its 50% stake back to the latter in a deal valued at roughly $775 million. It was a costly misstep -- initiating the joint venture cost Best Buy $2.15 billion in 2008 -- but it was necessary if Best Buy is to get back on its feet.
"This transaction allows us to simplify our business, substantially improve our return on invested capital, and strengthen our balance sheet," said Best Buy Chief Executive Hubert Joly, although he was careful to explain that Best Buy's retreat from developing big box stores in Europe "does not suggest any similar action in our other international businesses," which includes stores in Mexico, Canada and China.
Best Buy is not looking too good right now. The company is trading at $25.60 on a 52-week range of $11.20 to $26.92. Analysts give the company a one-year target estimate of just $24.32, a decrease in share price of more than 5%. However, while the company does have several weaknesses, such as a low net income, weak operating cash flow and poor profit margins, I think it is too soon to count the electronics retailer out just yet.
Shares in the company will likely fall further -- so don't buy in just yet -- but it is a smart company that recognizes when it is time to fold. Best Buy did that. It is also finding a footing against the "showroom effect" -- and that alone could repair the bottom line.