By Sam Lewis, associate editor
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New initiatives and cutting costs have struggling retailer gaining life
Last year, Best Buy’s stock price was at its lowest point in nine years. Sales were plummeting while former CEO Brian Dunn was covered in a shroud of shame due to his unethical relationship with a female employee. However, the summer of 2013 brought about some good news for the struggling electronics chain. Best Buy posted its first profit in a year, with earnings skyrocketing to $266 million for the quarter, against $12 million posted in the same period of 2012. The price of the company’s stock has even tripled. To phrase it simply: Best Buy has been on a rampage.
But, many Wall Street analysts think the electronics retailer’s return to relevance, led by CEO Hubert Joly, has only just begun. Joly’s turnaround strategy’s roots are in cutting costs — saving close to $390 million by removing unnecessary management, closing unprofitable stores, and selling returned products online — and experts are saying the stock could continue to rise due to its low cost. Market analysts see the company’s stock rising to a minimum of $50 per share, up from its current mark of $38.
While most experts are suggesting buying Best Buy stock, not all of them are as optimistic. R.J. Hottovy, an analyst with Morningstar, says the company’s rivals have plenty of weapons — like loyalty programs, digital content libraries, and competitive pricing — to counter Best Buy’s latest efforts. Other analysts worry the lineup of products offered by the company has lost popularity with shoppers, leaving only the smartphone, tablet, and home appliance market for Best Buy.
Walmart and Amazon are Best Buy’s main competition, both of which currently carry the reputation of having lower prices than Best Buy. Joly can help Best Buy shed its reputation of having higher prices than its peers by keeping his promise to match competitor’s prices. Upgrades to Best Buy’s e-commerce platform, new initiatives like buy online, pickup in-store, and gaining new vendors for boutique shops inside Best Buy stores should allow the company to keep pace with Amazon and Walmart. Currently, Best Buy has Samsung and Microsoft boutiques in the confines of its brick-and-mortar stores.
Another practice Best Buy has just begun, and is really a smart move on their behalf, is eliminating unnecessary distribution centers and warehouses. By shipping online orders from brick-and-mortar stores close to a customer’s house, fast delivery times are achieved and inventory is better leveraged. In a world where immediate order fulfillment is quickly growing into the pinnacle of a retailer’s success, Best Buy would be wise to keep this investment, and dig further into it.