Best Buy Chief Executive Officer Hubert Joly is borrowing that two-letter word and plenty more from rivals to improve the retailer’s e-commerce operations, which even his own colleagues say had fallen a decade behind. While the website won’t seriously vie with Amazon.com Inc. (AMZN) any time soon, Best Buy can harness its brand recognition and status as the largest consumer-electronics retailer to grab e-commerce share. The efforts may already be helping, with Best Buy’s online traffic rising 9.9 percent in August from a year earlier, according to data from Compete.com that the company uses.
“They’re the 800-pound gorilla,” David Strasser, an analyst at Janney Montgomery Scott LLC in New York who recommends buying the shares, said in an interview. “After struggling with no real Internet expertise, they’ve brought on a pretty strong team.”
Joly first set about shoring up the physical stores after taking over as CEO about a year ago, cutting $390 million in annual costs and matching rivals’ online prices to slow the decline in same-store sales.
The stabilization has helped restore investors’ confidence in Richfield, Minnesota-based Best Buy. The stock, which traded at an 86 percent discount to the Standard & Poor’s 500 Index on a price-to-earnings basis in January, has tripled this year and closed at a 6.8 percent premium to the index today. The shares slipped 0.8 percent to $37.66 at the close in New York.
Breathing Room
That rebound gives Joly, 54, some breathing room as he works to convert more of Best Buy’s 1 billion annual online visitors into buyers. Slightly more than one of every 100 visitors makes a purchase, about half the average rate among retailers, according to UBS AG.
Joly has set a target of more than doubling Best Buy’s share of U.S. online consumer-electronics sales to 18 percent -- matching its share of brick-and-mortar sales -- from the current 7 percent.
“There is no reason it should be lower,” Joly said in a telephone interview in August. Bringing BestBuy.com up to speed with competitors “is going to be a two- or three-year journey.”
About a month after becoming CEO, he hired Scott Durchslag from online travel company Expedia Inc. as president of Best Buy’s global e-commerce operations.
Joly’s Hires
A month later, Joly brought Sharon McCollam out of retirement to become Best Buy’s chief financial officer and chief administrative officer. In similar roles at Williams-Sonoma Inc. she helped push online sales to 40 percent of total revenue. Now Joly is hiring more than 100 Web architects, engineers and other technology workers.
The team is starting with the basics, such as adding more product reviews and buying guides to the website and enabling it to recommend additional purchases for shoppers as they check out. The site got a new search platform in May, fixing a system that sometimes called up the wrong results for customers’ queries.
Best Buy began testing shipping online orders from stores to customers’ homes four months ago, catching up to Nordstrom Inc., which has filled online orders from stores since 2009.
Single Site
“My Best Buy,” which has 41 million active members, now lets shoppers redeem reward points and shop on a single site, bringing it up to speed with programs found everywhere from Dick’s Sporting Goods Inc. (DKS) to Panera Bread Co. (PNRA) Best Buy’s previous loyalty program, “Reward Zone,” wasn’t linked to BestBuy.com, forcing users to log onto both sites to turn points into purchases.
“It’s about catching up to where the site should have been,” Durchslag told analysts and investors on a conference call in June. “Because if you really go through the site, in some ways, it’s a time warp. It’s a 10-year time warp in some ways.”
“My Best Buy” has some advanced features. Mobile-phone users earn points by clicking on an application while they’re in stores. The program has three membership tiers, and shoppers who make the top level by spending $3,500 or more a year get free expedited shipping on purchases and 45 days to make returns and exchanges.
Loyalty Rewards
Best Buy is now “actually rewarding loyalty, similar to hotels and airlines,” Gary Balter, an analyst at Credit Suisse Group AG in New York, wrote in a note Sept. 17. He rates the shares outperform, the equivalent of a buy.
The changes so far helped Best Buy’s online sales rise 11 percent in its second quarter, the seventh straight quarter of gains of 10 percent or greater. That growth still trails Seattle-based Amazon, the world’s largest online retailer, which boosted North American electronics and other general merchandise sales 31 percent in the comparable period. Best Buy generated U.S. online sales of $477 million, or 6.1 percent of domestic revenue, in the second quarter. That’s down from 6.2 percent in the first quarter.
Amazon declined to make executives available for interviews through Mary Osako, a spokeswoman.
By the holidays, Best Buy plans to expand its store-to-home delivery service to more than 200 stores from 50, Joly told analysts last month.
The expansion may help the chain move more inventory that otherwise may have gone unsold or required deep discounts to clear, said Tom Kamp, who helps manage $15 billion, including 785,700 Best Buy shares, as president and chief investment officer at Cornerstone Capital Management in Edina, Minnesota.
“There is not any one magic bullet,” Kamp said in a telephone interview, “just a lot of basic blocking and tackling that’s beginning to get things turned in the right direction.”
To contact the reporter on this story: Chris Burritt in Greensboro at cburritt@bloomberg.net
To contact the editor responsible for this story: Robin Ajello at rajello@bloomberg.net
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