The Supply Chain Matters blog has provided highlights of retailers that were able to benefit from the COVID-19 pandemic because of their investments in online customer fulfillment and digital business processes. In prior commentaries we specifically highlighted online performance results from Amazon, Home Depot, Walmart, Target and Lowes Home Improvement.

Retailer Best Buy’s latest performance provides a different perspective that of investing in online capability but unable to fully take advantage due to supply shortages of in-demand products, and stores not deemed to be essential during population lockdowns.

This retailer’s fiscal second-quarter financial performance made business headlines last week, but in the context that it could have been better if there were not product shortages in high tech products or appliances that consumers wanted to buy. An uncertain outlook delivered by this retailer’s executives did not help to bolster investor confidence.

Retailer Best Buy

In reporting Best Buy’s financial results for the fiscal; second quarter, CEO Corie Barry indicated to investors and analysts that when stores were allowed to open, constrained product availability turned out to be more than expected. The retailer’s physical stores were only open by appointment during the first six weeks of the quarter. Another executive indicated that while expecting product constraints to occur in the quarter, stronger than anticipated demand levels as stores were opened for physical shopping resulted in more constrained product availability.

After closing its stores in March, customers were allowed to shop in May, by appointment only. All retail stores subsequently opened on June 22, with upwards of half of 51,000 previously furloughed employees brought back.

Sales were driven primarily from demand for computers, tablets or game consoles along with deemed essential home appliances such as refrigerators, freezers, in-home theater or other consumer electronics. Reports pointed to double-digit gains in computers and alliances as consumer responded to primary residential addresses as being both an added work, entertainment and recreational center.

Total revenues increased to $9.9 billion compared to $9.54 billion in the year-earlier quarter as comparable same store sales increased 5 percent. U.S. focused online sales for the quarter reportedly more than tripled to $4.9 billion accounting for 53 percent of U.S. sales. Store closures brought about by COVID-19 were offset by increased use of curbside pick-up services.

Net income was reported as $432 million compared with $238 million in the year-earlier period. Profit margins eroded in the quarter due to added costs associated with the significant increase in online order volumes. The initial news of quarterly financial performance caused the price of this retailer’s stock to decline nearly six percent.

 

Augmenting Online Fulfillment and Distribution Strategies

After reporting its latest financial performance CEO Corie Barry indicated that by September, this retailer will turn upwards of one-quarter of stores into designated online order hubs. About 250 physical stores will act as a ship-from-store hub distribution model, specially designed to be able to support higher online volumes. The stores have reportedly been determined based on their proximity to shipping carriers and overall ability to support same-day or next-day delivery. Third-party locations were online customers can pick-up their orders will also be expanded.

In essence, such a strategy is similar to how many of the most popular combination physical and online retailers have moved to, namely positioning physical stores as part of the online customer fulfillment network. As we noted in our prior commentaries highlighting retailer Target, physical stores serve as online customer fulfillment options for online orders depending on inventory availability and customer convenience in order delivery needs.

Such a strategy further changes the notions of how any future physical stores will be determined, not so much for geographical presence, but rather on abilities to meet online service and delivery needs.

 

The Bottom Line

Certain retailers have clearly stepped-up their game in determining strategies to meet the structural shift in consumer buying preferences toward online retail. The COVID-19 disruption has indeed magnified that need, at the peril of other retailers.

Even Amazon.com has learned some important lessons, in that the competition has the ability to compete on selection, availability and online convenience.

 

 

Bob Ferrari

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