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Best Buy: Lower-Income Consumer Trade Down Impacts Visits, but New Formats Still Show Promise

RJ Hottovy
Sep 2, 2022
Best Buy: Lower-Income Consumer Trade Down Impacts Visits, but New Formats Still Show Promise

Key Best Buy Metrics

Although Best Buy’s management team had already revised its 2Q22 outlook downward in late July, the retailer’s full calendar 2Q22 update offered an opportunity to assess what management characterized as "a volatile consumer electronics industry". While management had assumed that the consumer electronics industry would be lower following two years of elevated growth driven by unusually strong demand for technology products and services and fueled partly by stimulus dollars – a trend we’ve heard across several retail categories this year, including home improvement, home furnishings, and sporting goods. The broad consumer shift toward experiences (travel and entertainment) and record inflation in key categories like food and gas has negatively impacted demand, particularly among lower-income consumers.

  • Evidence of trade down? Best Buy management noted it is seeing some evidence of trade down among its consumers, particularly those in lower-income households (Placer.ai data also confirms fewer visits from lower-income census blocks among a sampling of trade areas for Best Buy's stores). These trends are not taking place across all categories, but for larger-ticket items like televisions, customers are moving more into lower price-point exclusive brands and products. The retailer also noted seeing more interest in sales events such as Prime Day, tax-free events, and other events geared at exceptional value. Placer.ai data confirms significant improvement in WoW visits during the same week as Amazon’s Prime Day promotion (July 12-13).

  • Best Buy’s strong 2021 sets up difficult comparisons in 2022. Best Buy posted a -12.7% comparable sales decline in its domestic segment during the quarter, which June seeing the largest decline (-16%), but improved in July. Some of the YoY declines are due to outperformance in the year ago period (from a category standpoint, the largest contributors to the comparable sales decline in the quarter were computing and home theater, which were both winning categories during the pandemic), as Best Buy’s visitation trends outdid the CE category last year. For the rest of the year, Best Buy anticipates that comparable sales will decline slightly more in 3Q22 versus the enterprise comparable sales decline posted in 2Q22 (-12.1%) and a -11% decline for the full year.

  • Outlet/experience concept updates. We’ve highlighted the early success of Best Buy’s new outlet and experience store models in the past, and our data continues to show that both store concepts are attracting new unique customers. As management pointed out, its outlet stores (backed by ship-to-home fulfillment capabilities) offers the chain a way to refurbish inventory while attracting a deal-seeking consumer, something that could work well against the current macro backdrop. Best Buy management is planning to double the number of its outlet stores to approximately 30 locations, although some may not open until next year. The company has also completed seven Experience Store concept remodels year-to-date, which is resulting in higher customer spend and a trade area skewed more toward 18–37-year-old consumers than prior to the remodels. Management expects to complete a total of approximately 40 Experience Store remodels this year.

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RJ Hottovy

Head of Analytical Research, Placer.ai

R.J. Hottovy, CFA has covered the restaurant, retail, and e-commerce sectors for nearly 20 years as an equity analyst and strategist for Morningstar, William Blair & Co., and Deutsche Bank.

R.J. also brings a wealth of experience with early-stage investments as an investment committee member for the IrishAngels / Vitalize venture capital group. Over the past three years, he has advised over 50 foodservice and foodservice tech companies on more than $200 million in early-stage capital raises and M&A transactions.

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