The turnaround
Under new management, the firm is positioning itself to “turn the tables” on web-only retailers and discounters by making the stores more engaging, website more functional and improving the synergies between the two. The company can “win” against an array of formidable discount and web-based competition such as Amazon.com, Inc. (NASDAQ:AMZN).
Competition is no longer a worry
Amazon.com, Inc. (NASDAQ:AMZN) has always been known for being the cheapest retailer, and with the advancement of smartphones rose a shopping strategy known as showrooming. Clients would walk in to Best Buy Co., Inc. (NYSE:BBY), test out a product, then pull out a smartphone and scan the product’s barcode. An app on the phone will automatically find the same product on Amazon.com (often at a cheaper price) and the client would typically walk out of Best Buy empty-handed, ultimately making the purchase online. Showrooming was thought to be the end of many retailers including Best Buy Co., Inc. (NYSE:BBY). No more!
Best Buy will now match any local retailer’s price in addition to those of 19 online retailers, including Amazon. This move is bad news for Amazon.com, Inc. (NASDAQ:AMZN), as the recently implemented price-match guarantee couldn’t have come at a better time for Best Buy, which had lost market share and earned a reputation as being overly expensive. Best Buy’s 1,056 domestic big-box stores are now substantially more price-competitive than ever before.
Samsung improving in store experience.
Best Buy Co., Inc. (NYSE:BBY) is teaming up with Samsung to create the “Samsung Experience Shop” – essentially an area of the store that only sells Samsung products. Over 1,400 stores will get this department, and each will sell Samsung’s extremely popular, best-selling cell phones and tablets. The Samsung deal was announced on April 30, and should be fully in place by the end of June.
The deal works for Best Buy Co., Inc. (NYSE:BBY), as a visually appealing, open area space showcasing Samsung products will drive traffic to the stores while removing old, dust-gathering unpopular products that typically clogged the retailer’s sales floors. Company CEO Hubert Joly was quoted as saying “We are interested in doing more and we see it as win-win-win,” said Joly. “It’s winning for the customers, it’s winning for the vendors and it’s winning for Best Buy.”
Online shopping also getting a revamp
Best Buy Co., Inc. (NYSE:BBY)’s e-commerce is being upgraded to elevate their online profile through enabling better paid and natural search positioning, better onsite navigation, and the option to check in-store inventory so a client can purchase online and pick up in stores. Currently 2%-4% of web orders are out-of-stock, and the ability to check brick and mortar’s online inventory will drive incremental sales opportunities.
Macro environment is favorable
While fears of an economic slowdown has certainly dissipated over the past few months, Best Buy can continue to thrive in this type of environment. The company’s earnings stream is very season in nature, approximately 75% of annual profits are earned in Q4 during the holiday season which is encouraging as the economic data continue suggesting positive steps forward. In fact, U.S households’ net worth rose $3 trillion to reach $70.3 trillion in the first quarter of the year, the biggest quarterly gain since late 1999.
Hard to stay one step ahead of competition
Best Buy’s moves will shore up its competitive position, but the firm’s competitors will engage in their own strategies. Target Corporation (NYSE:TGT) has implemented an identical matching policy to compete against Best Buy Co., Inc. (NYSE:BBY) and curb against “showrooming.” Target Corporation (NYSE:TGT) also is a one-stop shop, selling many of the same electronics that Best Buy does, in addition to a wide variety of other products, such as food and furniture. Target Corporation (NYSE:TGT) maintains its long-term goal of hitting $100 billion in revenue by 2017 and generating EPS of $8 per share. Aggressive expansion into Canada may make these seemingly unrealistic targets a possibility. Investors can jump in now while the shares are still cheap compared to what they will be once the Canadian expansion is complete and the company is ready to start looking elsewhere to expand. A recent dividend hike also provides investors a reason to cheer, with the quarterly dividend increased 19% to $0.43 per share.
Nonetheless, Target remains an attractive investment. Its price-matching guarantee will certainly help the bottom line, but at the end of the day, Target’s core business is not electronics, while Best Buy remains a specialty retailer with better trained, more proactive employees.
Conclusion
Best Buy Co., Inc. (NYSE:BBY)’s forward P/E of 11 is below its historical mid-teen highs, which leads me to believe the company has room to continue growing and continue in its turnaround. I remain optimistic on the company and believe that a revamp of both online and offline venues, done properly, can continue driving the shares higher.
The article Best Buy Is a Great Buy originally appeared on Fool.com and is written by Jayson Derrick.
Jayson Derrick has no position in any stocks mentioned. The Motley Fool recommends Amazon.com. The Motley Fool owns shares of Amazon.com. Jayson is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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