A related development is the push for online retailers to collect sales tax. The U.S. Senate recently passed a bill which would allows states to require retailers to collect sales tax if the shopper is from that state. Amazon has avoided collected sales tax for many years, and only recently began collecting in some states. This brings Best Buy’s prices more in line with Amazon’s and removes the built-in advantage that the online retailer once had. Joly noted in the earnings call:
And in states that are already collecting, we’re seeing an incremental benefit in our online and retail store sales.
So it seems that Best Buy is already benefiting from the sales tax, and that benefit should grow if the Senate bill is ultimately signed into law. It’s unclear how much of Amazon’s growth was attributed to lack of sales tax. I’m sure that at least some people shop on Amazon specifically to avoid paying sales tax, so it will be interesting to see the effect on Amazon’s sales.
Another step that Best Buy is taking is the buy online, ship from store initiative. This allows a customer to buy a product that may be out of stock at the online distribution center but is in stock at a nearby store and have that store ship it directly. This should have the effect of raising the online conversion rate as well as making inventory management more efficient.
Square-foot optimization
For a long time Best Buy has dedicated a huge amount of floor space to CDs and DVDs, which are low margin products. The company is reducing the space allocated to these types of products and replacing them with higher-margin products like appliances and mobile devices. One specific initiative is the Samsung Experience Shops, which are a store-within-a-store concept where Samsung representatives tout the benefits of the company’s devices. So far these shops have been installed in 525 large-format stores and 390 mobile stores, an impressive build up in such a short amount of time. More shops are expected to be installed in the second quarter, and these should lead to better profitability starting next quarter
Another step Best Buy is taking is adding dedicated clearance sections in stores and allowing online shoppers to buy these items directly from the website. This could also provide a boost to online sales.
Part II: A deeper look
In Part II of this article I’ll look at the last three items of Renew Blue, all of which relate to cutting costs, and take a deeper look into exactly how profitable Best Buy was in the quarter. Even though GAAP EPS was negative due to write-offs relating to Europe the company actually generated quite a bit of profit.
Best Buy earnings call transcript
The article The Turnaround Continues: Part I originally appeared on Fool.com and is written by Timothy Green.
Timothy 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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