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Market Share Defense Costs Best Buy In Holidays

Holiday retail composite revenues were up, as the National Retail Federation has reported recently, but driving product through stores came at a cost to some companies, as Best Buy Co. Inc. just-posted sales results demonstrate. For the nine weeks ended January 4, Best Buy reported revenues of $11.45 billion versus $11.75 billion in the year-earlier period as, according to an announcement, it defended market share.

Domestic segment revenue was $9.75 billion versus $9.91 billion in last year’s period. Comparable store sales slipped 0.8% in total and 0.9% in the Domestic segment.

“When we entered the holiday season, we said that price competitiveness was table stakes and an intensely promotional holiday season is what unfolded,” said Hubert Joly, Best Buy president and CEO. “In both channels, the promotional intensity that began with Black Friday continued throughout the period, which led us and our competitors to answer one question: Do we make the incremental investment necessary to be price competitive and defend our market share? For us, there was only one answer. To advance our Renew Blue transformation, it was imperative that we live up to our customer promises, and one of these promises is to offer our customers competitive prices. This investment in pricing did come with a higher-than-expected cost, and we now estimate our fourth quarter non-GAAP operating income rate will be 175 to 185 basis points lower than last year. However, our price competitiveness combined with our improved customer experience both in-store and online, as demonstrated by a 400 basis point improvement in our Net Promoter Score, resulted in a market share gain in an industry that NPD says declined 240 basis points during the holiday period.

Joly also stated that the company “made significant progress against several other Renew Blue priorities that will leave us well-positioned as we enter fiscal 2015. These initiatives included: comparable online sales growth of 23.5%, very strong retail execution, transformational supply chain execution that included, for the first time, giving far greater access to total company inventory through our newly launched ship-from-store capability available in more than 400 stores, and strong inventory management. We also eliminated an additional $45 million in annualized costs as of January 16, bringing our total annualized Renew Blue cost reductions to $550 million.”

Joly noted that holiday revenues slipped for a number of reasons, including: aggressive retail industry promotional activity in the holiday period “which we believe did not result in higher industry demand and had a deflationary impact on our revenue, supply constraints for key products, significant store traffic declines between ‘Power Week’ and Christmas, and a disappointing mobile phone market.”

Still, Joly concluded, “Looking ahead, our holiday performance reinforces our resolve and our sense of urgency around our transformation. As a result, our key priorities going into fiscal 2015 are to more quickly and more deeply lower our cost structure, to grow our online channel at an accelerated pace, to continue to improve and innovate the multi-channel customer experience, to enhance our marketing approach and effectiveness, particularly relating to personalization, targeting of customer segments and buying occasions, and to reinvigorate and grow our Geek Squad services business.”