Best Buy pronounces plans to extend sales and monetize with AI

Best buy announced recent plans on Tuesday as the corporate seeks to reverse a two-year sales slump and capitalize on a long-awaited alternative cycle from pandemic-era purchases and a brand new wave of innovation.

The consumer electronics retailer announced it will deploy trained sales teams in key areas of its stores, create more YouTube videos to pique customers' curiosity and launch a marketing campaign with a brand new slogan: “Imagine this.”

In an interview with CNBC, CEO Corie Barry said customers told Best Buy that the retailers’ in-store experience and the technology they provide “look a little bit like [their] Sparkle.” She added that innovation in the consumer electronics sector has hit a dry spell.

“That's our main focus this year,” she said. “To bring all the 'new' back in there.”

Best Buy's biggest hopes for increasing sales include laptops and smartphones with artificial intelligence.

Still, the retailer doesn't expect its sales to improve overnight. The company has reported 10 consecutive quarters of declining comparable sales, a key metric that strips out the impact of store openings and closings. Best Buy said in May that it expects full-year comparable sales to be about flat or down as much as 3% year over year.

Best Buy expects revenue to be between $41.3 billion and $42.6 billion, down from $46.3 billion last year. That would put revenue just below the $43.6 billion in the pre-pandemic fiscal year that ended in early 2020.

Barry said consumers are still making “very clear, value-based decisions.”

Best Buy shares reflect the weak sales: By the close of trading on Monday, the value had fallen by about 36 percent from its all-time high of $138, which the stock reached in the course of the Covid pandemic.

Steven Zaccone, an equity analyst who covers retail at Citi Research, upgraded Best Buy's stock from “sell” to “buy” in early June, partly because of an expected wave of new products.

But he acknowledged that trends are harder to predict as consumers watch their wallets after the highest inflation in decades and are distracted by the uncertainty of this year's presidential election.

“People who concentrate on the near future would say the category continues to be declining,” he said. “So the forecast is predicated on the hope that there will probably be an inflection point toward growth.”

Best Buy executives and investors have reason to be optimistic. Best Buy's laptop sales have been higher than the same quarters last year for each of the last two quarters, early signs that a replacement and upgrade cycle may be underway.

Last week, purchases of consumer electronics such as tablets, TVs and Bluetooth speakers helped drive sales on U.S. retailers' websites to a record $14.2 billion during Amazon's two-day Prime event, Adobe Analytics shows. That was a change from a year earlier, when inflation-hit shoppers took advantage of deals on home goods. (Best Buy is one of the retailers that got in on the Amazon-created shopping holiday by offering its own deals.)

Best Buy's ability to grow sales depends in part on its suppliers. The company is hungry for innovations that give customers new reasons to come to its stores or website.

In recent months Apple, Samsung And Microsoft have announced new product launches that could generate hype and drive customer traffic. Apple launched a collection of new iPads in May. Earlier this month, Samsung unveiled its first “smart rings” with health-tracking features to compete with Oura's own ring and the Apple Watch.

Microsoft also announced a range of new PCs in May, including Copilot, a chatbot powered by artificial intelligence. The collection, which includes around 40 different items, about 40% of which are exclusive to Best Buy, began shipping in mid-June.

Barry said the retail chain will benefit as customers take advantage of these technological advances and stores offer entirely new lines of business, such as rings that can track sleep, physical activity and more.

“Five years ago, we might never have offered jewelry in our stores and now we can have a complete section of wellness products that might be worn in a really unusual way,” she said.

Instead of rattling off the dimensions of TVs and laptops, Best Buy employees will focus on explaining to customers how the items can save them time or make their lives easier, Barry said.

In stores, customers will see more experiential displays over the summer showcasing products like Tesla chargers, GoPro video equipment and Lovesac furniture, and dedicated teams will be set up for the computer, appliance and home theater sections of the store — three key areas where Barry said customers tend to need support.

Barry said store employees will point out unique features that customers may not know about, such as a laptop with more than twice the battery life, a washer/dryer combo that lets them do two loads of laundry at once or a home theater system that can transform a workout room into a spin studio.

In the Best Buy app, customers will see a personalized home screen, a new Explore tab, and the ability to set up alerts when an item on their wish list goes on sale.

The company plans to publish over 500 videos on its YouTube channel, app and website by the end of the year, triple the number from last year.

And as it prepares for the back-to-school season, Best Buy will run commercials online, on streaming services and on social media featuring a “spokeshologram” named Gram.

“We're very focused on what makes us different, and I imagine we're the one ones who may help our clients bring the 'what if?' query to life,” Barry said.

But Best Buy will implement this sharper customer strategy on a tighter budget. Barry said at the company's earnings call in May that the retailer plans to invest about $750 million this fiscal year, about $50 million less than last year. Rather than major remodeling and new openings, it will cut spending by “refreshing” all of its roughly 900 U.S. stores, she said.

The company's dedicated teams in part of the business would consist of existing workforce supplemented by employees from suppliers, she told CNBC.

Best Buy has faced “Murphy's Law of Headwinds” over the past three years, says Scot Ciccarelli, an equity analyst at Truist Securities, citing the saying, “Anything that may go improper will go improper.”

Among the challenges facing the company is that consumers are cutting back on more expensive purchases such as smartphones as everyday costs of groceries, gas and rent have risen. The downturn in the housing market due to higher interest rates has dampened demand for home-related purchases such as a bigger TV or new kitchen appliances.

But Ciccarelli said Best Buy's unusually high sales during the pandemic have plagued the retailer the most, disrupting the usual rhythm of shoppers replacing smartphones, laptops, home appliances and more, as many of them had bought that tech as they set up their home offices, gyms and kitchens during the Covid lockdown.

As consumer electronics brands struggled with temporarily closed factories and clogged supply chains during the pandemic, they brought fewer groundbreaking technologies to market. Without those advances, Best Buy is trapped in price competition, selling roughly the same devices as rivals like Amazon and Walmart, especially when customers have little reason to touch or feel a product before buying, Ciccarelli said.

Consumer electronics is a weaker category in retail. Sales through the end of June were down 4% in dollars and 5% in units compared to the same period last year, according to Circana, a research firm that tracks point-of-sale data from major U.S. retailers. The research firm's definition includes most major devices such as TVs, tablets and audio equipment, but excludes some categories Best Buy sells, such as appliances.

However, according to Circana, spending on consumer electronics is up 5% this year compared to the same period before the pandemic in 2019.

Part of the increase was due to higher prices for computers, televisions and other items, said Paul Gagnon, consumer technology consultant at Circana. For example, the average price of items in the headphones category rose 60% compared to 2019 as customers opted for wireless earbuds such as Apple's Airpods or wireless headband headphones.

The busiest season for consumer electronics is yet to come. Historically, around 57 percent of the category's sales have been generated in the second half of the year, according to data from Circana.

And the most important days for consumer electronics are still to come: the back-to-school and holiday seasons.