Best Buy Co. Inc. ABY,
is adjusting its business to meet consumers’ new online shopping habits brought on 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 on the company’s fourth-quarter earnings call that the consumer electronics retailer has closed about 20 large-format stores in each of the past two years, and that the company expects ” close a higher number this year. “
The company has around 450 leases that will be renewed over the next three years, around 150 each year. Barry said there will be “higher thresholds for renewing leases as we assess the role each store plays in its market,” according to a FactSet transcript.
Read: The National Retail Federation forecasts 2021 retail sales growth of 6.5% to 8.2% as COVID-19 vaccine rollout continues
Even as Best Buy evaluates which stores to keep, the company has plans to revamp the locations to help fulfill orders from its thriving online business.
Best Buy reported a comparable increase in online sales of 89.3%, with nearly two-thirds of online revenue collected in-store or curbside, shipped from a store, or delivered by a store employee.
“In the fourth quarter, the pandemic generated an approximately 15% reduction in traffic to our stores, including in-store shoppers and customers picking up orders online through the store or on the sidewalk,” said Barry. .
“And while some of the traffic is likely to return to our store channel in fiscal 2022, like many retailers, we believe that much of what we saw last year will be permanent.”
During the quarter, around 340 stores – roughly 35% of locations – were used to manage 70% of the items shipped 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 install “warehouse packing” equipment.
The company is also testing alternative designs in the Minneapolis market.
The changes in the business also extend to the staff. While the company announced bonuses for hourly workers in the coming weeks, the company laid off 5,000 workers this month, most of whom were working full time.
Watch: 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 tapped into multiple areas of our business, such as virtual sales, chat, phone and remote support,” said Barry.
Best Buy began fiscal 2021 with 123,000 employees and ended with 102,000, a reduction of 17%. Barry said that most of these reductions were the result of attrition.
“In our view, with a -20% year-on-year reduction in employees at the beginning of February, there is the potential for even lower SG&A growth in 2021, with discretionary investment spending on technology and the company’s healthcare business as a key variable, “Wedbush Analysts wrote.
“A bigger picture, reducing and reconfiguring the company’s workforce and repositioning its real estate are key to our illustrative example of ~ $ 90 million in occupancy savings and ~ $ 500 million in labor savings from work that could increase EPS by ~ 30% “.
Wedbush rates Best Buy stock as outperforming with a price target of $ 135.
“Moving forward, we believe there will be questions about the sustainability of margins as sales growth slows and online sales remain high,” wrote the UBS analysts.
“Although we believe that it is taking the necessary steps to align its store operating model with a more digital future. In particular, we believe the consumer electronics category is at risk of declining demand and wallet share regressions as we move towards reopening. “
UBS rates Best Buy’s stock as neutral with a price target of $ 120.
Raymond James downgraded Best Buy’s stock to outperform a solid purchase based on valuation and challenging comparisons. But analysts remain bullish on the retailer.
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“[W]We believe Best Buy is increasingly becoming a FY23 (CY22) story as productivity gains from store closings and fulfillment efficiencies coupled with higher revenue potential in the higher margin services business they are starting to take center stage, ”wrote analysts led by Bobby Griffin.
“We continue to firmly believe that innovation in consumer technology and telehealth should accelerate further after the impact of COVID-19, enhancing the inherent value of Best Buy’s products and services in the long term.”
Raymond James lowered his price target from $ 150 to $ 120.
Shares of Best Buy fell 2.1% in trading on Friday, but have gained 22.6% over the past year. The benchmark S&P 500 SPX index,
it has recovered 22.9% in the last 12 months.