Best Buy Co. Inc. BBY,
is adapting its business to suit the online consumer habits caused by COVID-19, including a plan to close more than 20 stores this year, and possibly many more in the coming years.
CEO Corie Barry said during the company’s revenue call in the fourth quarter that the consumer electronics retailer has closed about 20 large-format stores in the past two years, and the company expects it to close a larger number this year. ‘
The company has about 450 leases that will be renewed over the next three years, about 150 per year. According to Barry, there will be ‘higher thresholds for lease renewal as we evaluate the role each store plays in its market, according to a FactSet transcript.
Read: National Retail Federation forecasts 2021 growth in retail sales between 6.5% and 8.2% as COVID-19 vaccine continues
Although Best Buy is evaluating which stores it should hold, the company plans to refurbish locations to help execute orders from its thriving online business.
Best Buy reported a comparable 89.3% increase in online sales, and nearly two-thirds of online revenue was taken in-store or off-limits, shipped from a store, or delivered by a store employee.
“In the fourth quarter, the pandemic caused a 15% reduction in traffic to our stores, including the in-store store and the customers who picked up online orders through the store or by side of the house,” Barry said. said.
“And while traffic is likely to drop to our retail channel in fiscal 2022, like many retailers, we believe much of what we saw last year will be permanent.”
During the quarter, approximately 340 stores, approximately 35% of the establishments, were used to manage 70% of the items from the store. The company plans to use a smaller group of stores as hubs for this activity in the future.
And Best Buy plans to reduce the sales floor in a portion of these stores and package warehouse equipment.
The company is also testing alternative layouts in the Minneapolis market.
The changes to the business also extend to staff. While the company announced bonuses for hourly workers in the coming weeks, the company laid off 5,000 workers this month, the majority of whom worked full-time.
See: Best Buy says it laid off 5,000 employees this month
The company plans to add 2,000 part-time workers.
“Over the past year, thousands of employees with unique skills have been used across different parts of our business, such as virtual sales, chat, telephone and remote support,” Barry said.
Best Buy began fiscal 2021 with 123,000 employees and ended with 102,000, a decrease of 17%. Barry said most of these reductions were due to exhaustion.
“In our view, with a 20% year-on-year reduction in employees at the beginning of February, there is potential for even lower growth in SG & A in 2021, with discretionary investment spending on technology and the enterprise’s healthcare business an important variable, “he wrote. Wedbush analysts.
A bigger picture, the reduction and restructuring of the company’s labor and the repositioning of real estate are the key to our illustrative example of savings of ~ $ 90 million and savings of about $ 500 million, which can increase profits by ~ 30% increase.’
Wedbush rates Best Buy shares better than a $ 135 price target.
“We anticipate that there will be questions about the sustainability of the margin as sales growth slows and online sales continue to increase,” UBS analysts wrote.
‘Although we think it’s taking the necessary steps to align its retail business model with a more digital future. In particular, we think that the consumer electronics category is in danger of increasing demand for demand and wallet shares as we tend to reopen. ‘
UBS rates Best Buy stock as neutral with a price target of $ 120.
Raymond James downgraded Best Buy stocks to outperform strong buy based on valuation and challenging comparisons. But analysts remain excited about the trader.
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‘[W]”I believe that Best Buy is increasingly becoming an FY23 (CY22) story as productivity gains through store closures and fulfillment efficiency, coupled with greater revenue potential in the higher-margin service business, become the focus of the beginning,” analysts said. written under the direction of Bobby Griffin.
“We still believe that innovation in consumer technology and health should accelerate further after the impact of COVID-19, which increases the value of both Best Buy’s products and services in the long term.”
Raymond James lowered his target price to $ 120 from $ 150.
Best Buy shares fell 2.1% in Friday trading, but rose 22.6% in the past year. The standard S&P 500 index SPX,
has increased by 22.9% over the past 12 months.