COVID-19 Spurs Best Buy to Lower FY 2022 Sales Growth Expectations

The retailer didn’t give its customary guidance for FY 2022 because of pandemic uncertainties, but “planning assumptions” are for total comparable sales growth from minus 2% to 1% higher, said Chief Financial Officer Matt Bilunas on a Thursday earnings call. Other factors affecting planning are government stimulus actions and continued high unemployment. The range reflects a scenario in which consumers “resume or accelerate spend in areas that were slowed during the pandemic,” including travel and dining out, he said.

Bilunas expects a return to more promotional activity toward the end of the current quarter after a promotionally favorable Q4, driven by demand and constrained supply. CEO Corie Barry expects more “normalized inventory positions” throughout the year, driving a higher level of promotionality.

Demand for technology remains at “elevated levels” -- and sales growth in January continued through the first three weeks of February -- but uncertainty about administration of the COVID-19 vaccine and impacts on consumer shopping patterns make it difficult to predict how sustainable trends will be, Bilunas said. Best Buy estimates FY 2022 comp sales growth of 20%.

Online sales grew 89.3% in Q4 to $6.7 billion, comprising 43% of domestic sales, said Barry. Best Buy expects the mix to be about 40% in FY 2022 vs. 19% in FY 2021. Stores played a “pivotal role” in sales fulfillment with two-thirds of online revenue picked up in store or curbside, shipped from a store or delivered by a store employee, Barry said. Some 48% of online sales were picked up by customers at stores, a 90% jump from the prior-year quarter.

Ship-to-home volume grew 38%, said Barry. The retailer improved the speed of deliveries by using partners, stores and employee delivery, she said, with same-day shipping volume up 376%; employees delivered over 1 million units. The strongest categories for comp sales growth in Q4 were computing, appliances, gaming, virtual reality and home theater, she said. Growth was partially offset by declines in headphones and mobile phones, said Bilunas. Computing and smartphones were 43% of the domestic sales mix vs. 42% in the year-ago quarter; CE was 32% vs. 36%; appliances 12% vs. 10%; entertainment 9% vs. 8% and services held at 4%.

Barry called the decision to start holiday promotions in October, to avoid overly crowded stores during the pandemic, “effective” as they evened out “peaks and valleys” of the holiday sales season. Sales that were pulled forward by October promotions produced 33% comp sales growth for the month and led to moderating sales growth in November and December, she said. Stimulus checks reinvigorated sales in January, Barry said.

Barry highlighted permanent and structural implications arising from the pandemic, including a permanent change to shopping behavior that’s more digital and puts customers “entirely in control to shop how they want.” The workforce has to evolve and be more flexible to meet customers’ changing needs, she said, describing Best Buy’s transition moving from a “big box retailer with an omnichannel presence to an omnichannel retailer with a large-store footprint for support and fulfillment.”

The pandemic drove a 15% reduction in store traffic in Q4, including visits from item pickup, said Barry. Some will likely return this year, but the retailer believes much of the shift to digital shopping is permanent. It’s testing pilots to balance “the urgency for change with the need to learn and understand how customer shopping behavior is changing.” It used 340 stores in the Q4 pilot, 35% of stores, to handle 70% of total ship-from-store units, she said.

Best Buy is looking for similar results by consolidating volume using a smaller group of stores as hubs over time, Barry said. In some, it will slash square footage and install warehouse-grade packaging station equipment and supplies, she said. It’s also testing reduced selling square footage and “alternative layouts” in stores in Minneapolis. Stores still play a role in fulfillment, support, awareness and convenience that’s “critical to maintaining and growing sales,” but they also have to evolve to meet changing shopping behaviors, she said.

Best Buy will put stores through “rigorous evaluations” as leases come up for renewal, said Barry, referencing “higher thresholds” on renewals based on the role the store plays in the market, investments required and expected returns. About 450 leases are coming up for renewal in the next three years. Best Buy has closed 20 large-format locations in the past two years and will close more than that this year, she said. It’s also cutting back on the length of leases for “flexibility."

Employee count dropped 17% from the beginning of February 2020 to 102,000 this month, Barry said. Best Buy has had to make “difficult decisions,” including this month, Barry said. It laid off about 5,000 employees, most full time. Part-time roles were offered to many of the displaced full-time employees, she said. It’s adding 2,000 part-time positions. Of the 51,000 employees Best Buy furloughed in April due to store closures, about two-thirds were brought back in August, and remaining employees were offered seasonal work during the holidays, Barry said. Positions of those who decided not to come back and others who left through attrition haven’t been filled.

Employees will be expected to take on broader roles, as they did in response to changing customer needs during the pandemic, Barry said, highlighting the need for “flexibility and adaptability.” Best Buy is “intent on reskilling and retraining employees wherever possible” to be able to “flexibly work across all our channels.” The company is hiring in the areas of supply chain, small parcel delivery, customer care and technology and support, she said.

Barry referenced Best Buy’s growing in interest in the health and wellness category. The retailer is partnering with Microsoft to power healthcare initiatives, said Bilunas. Barry cited growing opportunities in 5G, beyond smartphones. She said customers can schedule consultations with a Best Buy adviser while shopping at Samsung.com.