Best Buy Co. Inc. ABY,
is tweaking its business to meet the new online shopping habits of consumers generated 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 in 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 to “close a bigger number this year “.
The company has about 450 leases to renew over the next three years, about 150 each year. Barry said there will be “higher thresholds when renewing leases as we evaluate the role each store plays in their market,” according to a transcript from FactSet.
Read: The National Retail Federation predicts a growth in retail sales in 2021 of between 6.5% and 8.2% as the COVID-19 vaccine continues to be developed
While Best Buy evaluates which stores to keep, the company plans to renovate locations to help fulfill orders for its thriving online business.
Best Buy reported a comparable increase in online sales of 89.3% and nearly two-thirds of online revenue was collected at the store or sidewalk, shipped from a store, or delivered by an employee. the shop.
“In the fourth quarter, the pandemic caused a roughly 15% reduction in traffic to our stores, including in-store shoppers and customers picking up online orders at the store or sidewalk,” Barry said.
“And while some traffic is likely to return to our store channel during fiscal 2022, like many retailers, we believe much of what we saw last year will be permanent.”
During the quarter, about 340 stores, approximately 35% of locations, were used to manage 70% of the store’s items. 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 some of these stores and install quality packaging equipment.
The company is also testing alternative designs in the Minneapolis market.
Business changes also extend to the workforce. Although the company announced bonuses for hourly workers in the coming weeks, the company laid off 5,000 workers this month, most of whom worked full-time.
See: 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 who possess unique skills have been leveraged in various areas of our business, such as virtual sales, chat, phone and remote assistance,” Barry said.
Best Buy began fiscal year 2021 with 123,000 employees and ended with 102,000, a 17% reduction. Barry said most of those cuts were the result of wear and tear.
“In our view, with a year-on-year reduction in employees of -20% in early February, there is potential for even lower spending and sales growth in 2021, with discretionary investment in technology and business spending Company’s healthcare is 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 employment savings and ~ $ 500 million. labor savings that could increase EPS by 30% “
Wedbush values Best Buy shares above the $ 135 target yield.
“In the future, we believe there will be questions about margin sustainability as sales growth slows and online sales remain high,” UBS analysts wrote.
“Although we believe that it is taking the necessary measures to align its store operating model with a more digital future. In particular, we believe that the consumer electronics category runs the risk of declining demand and portfolio regressions as we tend to reopen ”.
UBS values Best Buy shares neutral with a target price of $ 120.
Raymond James downgraded Best Buy shares to outperform strong buy based on valuation and challenging comparisons. But analysts remain optimistic about the retailer.
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“[W]I think Best Buy is increasingly becoming a 23-year history (year 22) as productivity gains from store closures and compliance efficiency, along with greater potential for ‘Revenues in the higher margin services business are beginning to occupy the center,’ wrote analysts led by Bobby Griffin.
“We continue to firmly believe that innovation in consumer technology and telehealth should accelerate after the impact of COVID-19, improving the inherent value of both Best Buy’s products and services in the long run.”
Raymond James lowered his target price from $ 120 to $ 120.
Shares of Best Buy fell 2.1% in trading on Friday, but have risen 22.6% over the past year. The S&P 500 SPX benchmark,
has increased by 22.9% over the last twelve months.