Sometimes that means they lean highly into innovation and trying to drive replacement cycles and trying to drive that incremental demand through innovation. Sometimes that means we partner closely together in how we show up in stores, whether that’s physically or in labor, and then sometimes that means, we will partner together in highly promotional or value-oriented periods to make sure, collectively, we are putting our best foot forward and it goes back to some of what I ended my comments with. There is a larger installed base of consumer electronics out there. And this is not static equipment we all have. This is equipment that whether or not you want to upgrade it, sometimes just wears out and breaks. And this is our unique place in this consumer electronics industry.
In partnership with our vendors, we are arguably the best to commercializing that new technology or bringing kind of this total story agnostic just carrying about the customer to life and I think what you’re seeing is this in this period right now, our ability to help drive value in partnership with our customers is really highlighted.
Michael Lasser: Thank you very much, and good luck.
Corie Barry: Thank you.
Matt Bilunas: Thank you.
Operator: Your next question comes from the line of Kate McShane from Goldman Sachs. Your line is open.
Kate McShane: Hi, good morning. Thanks for taking our questions. We wanted to ask a little bit more about the membership strategy, which is now in three tiers. Can you talk about how the profitability differs when compared to your previous program of Total Tech Support and does this profitability improve as the program scales and ramps?
Matt Bilunas: Sure. Yes, I think the changes we’ve made to the membership program have had a positive impact on our OI rate this year. I think we’ve talked about it being at least 25 basis points for the year. It’s coming from a few different areas. The first area, I would say is the changes we’ve made to the My Best Buy program, the free membership where we move points away from that program, which is solely on the credit card that helps drive some improvement in rate. The cumulative growth in the members is also a place where that actually helps improve our margin rates as well. So the growth in the annual membership fees does drive some of the improvement as well. Lastly, the changes we’ve made to the Total Tech program and turned into my Best Buy Total, it does lower the cost to fulfill and helps to drive an improved gross margin rate as well.
So those are the collection that drive the at least 25 basis points. And then Corie can speak to any sort of strategic things around the membership team.
Corie Barry: I think what’s most important is that at any given point in time, what the team I would argue has done a magnificent job doing is balancing acquisition, retention, and engagement. And while to Matt’s point, cost to serve as part of our considerations. What we want are not just to acquire a bunch of members but to make sure they are incredibly engaged and to make sure we retain them over time. And so while the profitability impact is part of what we’re looking at, the bigger question we are actually looking at is, what is that combination of acquisition, retention, and engagement that drives what we talked about, which is more sticky customers that bring a larger share of wallet and help keep Best Buy relevant over time.
Kate McShane: Thank you. And then a follow-up question was just around market share. We wondered if you’ve been seeing any kind of meaningful change here, whether it would be sequentially or just in any specific categories?
Corie Barry: So the good news is, overall, we feel very strongly about our position in the industry and we talked about it already a bit. We are confident in our relationship with our vendors and grateful for their partnership and I think we continue to be excited to keep investing in our strategy from a position of strength. We’ve said before, there is not a great single source for market share, both because we have a large portfolio of services. Also because we are always evolving new categories, but from what we can see in some of the more established categories, we have at least held our share in Q2 and we believe that’s been true really the first half of the year. So no major trajectory change. We feel like we’re positioned well and obviously, the team will continue to work with our vendor partners and ensure that we have that great valuable assortment for our customers.
Kate McShane: Thank you.
Operator: And your next question comes from the line of Brad Thomas from KeyBanc Capital Markets. Your line is open.
Brad Thomas: Hi, good morning. Thanks for taking my question. I was hoping we could talk a little bit more about kind of inflation, deflation. And what you’ve been seeing of late, and how you’re thinking about that in the back half of the year, particularly given the inflationary world that we’ve all been living in, but this backdrop of consumer electronics that has historically have been deflationary? Thanks.
Matt Bilunas: Sure. I think broadly speaking, let’s start with the categories. I think what we said from a product perspective, we certainly have seen a little bit inflation over the years. But what we’re now seeing actually is more promotionality on a year-over-year basis in some cases compared to FY ’20, so from category product perspective, I think we’re kind of beyond past the inflation aspects that there isn’t some cost of good increase, but generally speaking, the prices have gone up. So I think that hasn’t changed too much outside like sometimes more promotionality is dropping that price on a year-over-year basis. I think for inflation in other areas in terms of cost, there are things that are historically have always had a little inflation there, probably it will continue to go up.
Wages is an area where we always expect to have a little inflation, marketing also is a place where you see some pretty consistent inflation over the years. Supply chain is the more notable one that I think we’re seeing a lot of inflation over the years and now it’s starting to subside a little bit. Supply-chain has a number of different areas, one of them being the ocean side of supply-chain. That’s the smallest cost that we have and that’s an area where inflation actually has come down. Ground transportation or domestic transportation actually is an area where we are still seeing a higher level of inflation based on the wages that have the wage pressures and just the volume that’s increased. The warehousing side of supply-chain is also an area where we’ve seen inflation and would probably expect to continue to see some.
We also have wage inflation on the warehousing side, but also just we’ve expanded our footprint because our large products have grown in terms of the mix of our categories that we did it to add space. So broadly speaking, there are some areas where we probably continue to see inflation and some areas that will abate a little bit as you get into next year and years out.
Corie Barry: Brad, explicitly I want to highlight. We started talking about this category becoming promotional again in the fall of 2021. And so this is a category very different than some of what you’re hearing and I’ll just use an example like a number, where you’re starting to see that pullback. That is not the case here, but structurally, we have seen ASPs increase. So to your point about this is generally seen as a deflationary category. We spent some time talking on the last call about the fact that actually over time, it is not necessarily deflationary because every single new Rev of products carries with it a new and different price tag. So actually, over the longer period, when we look back to FY ’20, we have seen structural increases in ASP, but that is due more to our premium mix and it’s do more to having got more high ASP products like appliances and home theater.
And so, I just want to make sure I’m explicit in saying this is a bit of a different category on the pricing side of things. Matt did an exceptional job on some of the costing side of things, but we’re in a different place than many other industries and categories.
Brad Thomas: That’s really helpful. Thanks. Thank you both. And if I could squeeze in one follow-up here around the topic of shrink. Corie, you mentioned some of the new displays you have that have been helpful. But can you just help to put into context the success that you’re seeing in this tough environment given that there are so many retailers calling out challenges on shrink right now?
Corie Barry: Yes. I will start with our number one priority is and always has been the safety of our customers and our employees. And I need to be clear that in certain parts of the country in certain stores do that attempt that whether it’s breaking in or whether it’s larger-scale just grabbing and running out that those are real and we are definitely seeing an increase. However, we did not call-out material impacts to the business as a result of shrink pressure. And as we think about the way we think about shrink is overarching everything we call shrink as a percent of revenue, right, because you’re kind of trying to gauge it versus the volume and in total, our shrink as a percent of our revenue is within 10 basis-points of pre pandemic fiscal ’20 now, I give our teams all the credit in the world around us, and one of the things that’s a little bit different here at Best Buy is given the high-ticket nature of what we sell, we’ve been addressing shrink aggressively for honestly many-many years.
It’s really embedded in the culture and think about some of the things that are different for us, we have front door asset protection in our stores and likely often more floor coverage as well because we just have more employees in our stores and they just do an exceptional job of washing out over our stores, we usually just have one entrants in our stores, we tend to have less self-checkout. We have a very-high digital penetration at 33%, so that’s a little bit different. We also have to spend a lot of time on online side, which is a different kind of definition upstream. And so we just have structurally. I think a little bit different and honestly have been investing really heavily in this space over-time. I’m trying to really hard in our buildings, protect our employees and assets.
