Executives at electronics and home appliance retailer Best Buy said its retail real estate has been one of its greatest assets through the coronavirus pandemic but they are in no great hurry to fully reopen the more than 1,000 stores to the general public.
Perhaps that's because Best Buy seems to have hit upon a new model. But it's one that is mostly behind the scenes for consumers, which means that changes are on the way where its real estate footprint and its workers are concerned.
"Our stores are absolutely an asset, and they have been an asset throughout this," said CEO Corie Barry on a call with analysts Thursday. In April, "about 65% of what we sold online, which is the vast majority of what we sold, was either picked up curbside or shipped from a store. And so this asset of the store base is very real... What we're discerning is how might the stores look and work differently in the future? And how might they provide a variety of fulfillment options?"
The Richfield, Minnesota-based retailer has been considered a provider of essential services throughout the coronavirus pandemic, which forced many of its retail peers to close. However, Best Buy voluntarily shuttered its stores on March 22, switching to a curbside pickup model and amplifying its home delivery service. The company also made its troubleshooting technical team, the Geek Squad, which typically makes house calls, a remote, online-only experience.
Like similar measures at Target, Best Buy's curb-side business turned out to be quite popular, and it was a major contributor to triple digit gains in its e-commerce channel. The company did take a 5.3% year-over-year hit in first-quarter sales overall. Executives at Best Buy said on Thursday that the company was able to retain about 81% of its sales volume through curb-side, and saw a 155% increase in its online sales when compared to the first quarter of the previous year.
The amount of revenue flowing from online sales in the United States almost tripled, rising to 42.2% in the first quarter that ended on May 2 from 15.4% of Best Buy's first quarter revenues last year.
Another measure that was intended as a COVID-19 era adaptation might prove to be a permanent fixture in the Best Buy universe as well. The company began allowing a very limited number of customers back into 200 of its stores at the beginning of May on a by-appointment-only basis. The high-touch service and relative privacy involved in the appointment-only model is a hit with Best Buy's customer base, and got an an almost unanimous customer approval rating of 95%.
Consequently, the number of stores making such appointments has risen to 700. Most of the remaining locations are still operating in the curbside-only model. About 40 are completely closed, due to local circumstances like worker shortages, health-related restrictions on commerce imposed by the government, or both.
By contrast, during Best Buy's first quarter earnings call on executives gave no indication as to when their stores would return to business as usual.
The company has postponed store renovations planned for this year. Best Buy Chief Financial Officer Matt Bilunas told analysts the company would likely cut about $100 million from its capital improvement budget for the year. Previously, Best Buy intended to spend from $800 million to $900 million on store renovations and improvements to infrastructure. It expects now to spend around $650 million to $750 million, with a focus on technology and automation.
"In light of the fact that our stores have been closed to foot traffic for quite a while, I think there's some things...like store remodels, don't make as much sense in the middle of what we're dealing with as they would be otherwise," Bilunas said on the call.
Barry and others on the call said the changes they've seen in consumers' retail habits could outlast the pandemic that brought them about, and they hinted strongly that the stores would not be run as they were. Executives were vague about the future of all the 51,000 employees furloughed in April.
"It is clear that the current models we are operating simply don’t require the staffing our stores had before this crisis began," Barry said.
To soften the blow, the company is contributing money saved by cuts to compensation of its executives and board of directors to the Employee Hardship Fund, which was created by founder Dick Schulze for furloughed employees. Barry is foregoing 50% of her base salary, and the members of the board agreed to forgo 50% of their cash retainer as well. Other executives in the top ranks agreed to take a 20% reduction in base salary.