Best Buy’s digital and workforce investments pay off as profits soar during COVID-19
Best Buy’s digital and workforce investments pay off as profits soar during COVID-19
Derek du Preez
Wed, 11/25/2020 – 04:45
- US retailer Best Buy has been able to take advantage of demand for its products during the COVID-19 pandemic, as its digital strategy accelerates.
Best Buy CEO Corrie Barry has said the retailer’s omni-channel, digital and supply chain strategy has accelerated during the COVID-19 pandemic, as it quickly doubled down on previous investments to take advantage of increased consumer demand.
The result is that Best Buy has seen one of its best quarters in decades, with revenue rising to $11.85 billion in the third quarter, up from $9.76 billion in the same period last year. Net income stands at $391 million, up from $293 million.
The telling metric though is that online revenue soared by 173.3% in Q3, up to $3.82 billion. Online revenue now accounts for 35.2% of total revenue, up from 15.6% last year.
During a call with investors, Barry gave a comprehensive breakdown of how Best Buy is using technology and changes in the company’s workforce to both capitalise on the opportunity presented by COVID-19, whilst also speeding up previous investments. The CEO said:
Today, we are reporting strong Q3 results. Our comparable sales grew a remarkable 23% as we leveraged our unique capabilities, including our supply chain expertise, flexible store operating model, and ability to shift quickly to digital, to meet what is clearly elevated demand for products that help customers work, learn, cook, entertain, and connect in their homes.
We provided customers with multiple options for how, when, and where they shop with us to ensure it met their definition of safe retailing. The current environment has underscored our purpose to enrich lives through technology, and the capabilities we are flexing and strengthening now will benefit us going forward as we execute our strategy.
Customers continue to shop and interact with us differently than pre-pandemic. Online sales increased 174% and comprised 35% of our total domestic sales, which we view as a testament to our strength as a multi-channel retailer. Our interactions with customers via phone and chat were significantly higher than last year, and we continue to evolve our consultation program as our advisors conducted a much higher mix of customer consultations digitally and in stores than last year when consultations were predominantly in customers’ homes.
Flexibility and choice
Barry said that during the third quarter Best Buy customers consistently rated the company high markets for providing safe shopping interactions – with as much as a 97% approval rating. The retailer, he added, is adjusting its operations and piloting new experiences to emphasise safety and build in flexibility in order to respond to the novel Coronavirus. An example of this is how Best Buy extended its buy online, pick up curbside hours, giving customers the option to pick up orders before and after store opening hours. Barry added:
Additionally, in almost all stores, while customers are still welcome to come in and shop freely, we have transitioned all store pickup orders to curbside pickup orders. This will help reduce the people in our stores who simply need to pickup their order and will allow more customers inside who want to shop or talk to an expert. And for the much anticipated gaming console launch earlier this month, we provided our pre-order customers who had chosen the store pickup option, the ability to schedule a specific time to pickup their product. This resulted in fewer crowds and lines and was hugely successful. Both customers and employees loved it.
Barry’s belief is that customer shopping behaviour will be permanently changed in light of COVID-19 and that this is forcing Best Buy to accelerate its strategic direction and purpose. He said:
Our strategy is to embrace that reality and to lead not follow. It is too early to know exactly how much of our sales and customer shopping activity will be via digital channels over time. But as a result of the pandemic, we expect it will be higher than it has been historically.
Best Buy believes that its investment in technology, the use of technology by its customers and the company’s workforce all play an extensive and interdependent role in the future of the retailer. Barry said:
As you will see, we are taking the opportunity to test and pilot a range of models and initiatives in order to chart the very best path forward. In line with our other strategic priorities, we continue to see opportunity for efficiencies, which will allow us to reinvest in the business and build on our experiential differentiation in the future.
Stores and the workforce
On the changing role and nature of stores, Barry said that they will continue to give customers the opportunity to shop in person and ask questions about products. But that stores will also play an important role in the fulfilment of online sales. He added:
We have created what we believe to be an industry-leading store pickup experience that our customers value and now expect from us. So our stores will look different over time in terms of function, size and possibly even quantity, but they remain incredibly valuable at a cornerstone of our strategy.
As we mentioned last quarter, we have started to evolve the way we use our stores for fulfillment. We are pleased with the progress of our 250 ship-from-store hub locations that we first piloted in September. In fact, we are adding about 90 locations for the holiday period. All our stores will continue to ship online orders, but these locations are positioned to ship out significantly more volume and utilize dedicated labor aimed at fulfilling orders originating online.
These locations required minimal capital investment as we had the technology in place and were chosen due to their available warehouse space and proximity to carrier partners.
Best Buy expects that these 340 locations will ship more than 70% of its ship-from-store units during Q4 and Barry said that the benefit of the hub model is that it has allowed the retailer to extend its online order cut-off to 8pm for next day delivery.
But Best Buy knows that it’s not just operations and technology that will guarantee future success, it also needs to invest in opportunities for its workforce as demand for online channels continues to grow. Barry said that during Q3 Best Buy continued to advance its flexible workforce initiative, which allows store employees to become certified to perform tasks outside their primary job function. He explained:
This initiative helps employees develop their careers by giving them an opportunity to learn new skills to broaden their experience. It also gives team members the ability to earn a different hourly wage depending on the tasks performed and the potential for working additional shifts that otherwise may not have been available in their primary job function. This in turn reduces turnover and improve satisfaction.
At the start of November, over half of our associates were eligible to flex into different work zones and almost 20% of associates were scheduled in more than one department. For example, an associate who is historically a computing specialist could take a shift in the mobile department either because he or she wanted the change of pace or perhaps we needed extra labor in the department to support a launch or an associate who wants additional hours can grab an extra shift making deliveries to customers’ homes. In the near future, employees will also be able to easily take shifts in different store locations.
He added that this approach will help to meet customers where they are, with employees being able to support buyers whatever their channel of preference. Barry said:
Over time, we believe in place will continue to gain additional skill sets and be able to fulfill multiple roles, which will lead to additional scheduling, eligibility and flexibility for them and also drive efficiencies in labor planning and cost. This initiative works in concert with our focus on evolving the way we position employees to serve customers based on needs irrespective of channel. An example of this is the way we are supporting our customers who want to interact with us by a phone or online chat instead of coming into a store.
Best Buy has seen demand for phone and chat interactions scale considerably during COVID-19. As such, it has moved quickly to get 450 dedicated store associates cross-trained to help customers via phone and chat. It is upskilling a further 5,000 expel to flex into digital sales.
More choice for customers
At the centre of Best Buy’s strategy is using technology to further provide customers with choice. For example, Best Buy added digital queuing for customers this quarter, so that customers waiting at a store for assistance can do so in a socially distanced way from their cars. It also now has a dedicated customer experience host at every store to help guide shoppers, answer questions and manage any lines – adopting a digital + physical support approach.
For Best Buy customers, they now also have increased choice when it comes to shopping online. Barry said:
Customers who shop online now have more choices for how to get their order. Contactless curbside pickup is available at all of our stores. Online customers using our app to pickup their orders can plan their trip by viewing high and low traffic times. With first time launches of our app up 40% in Q3 compared to last year, customers are using the app more than ever and it is increasingly becoming a great self-help tool in addition to a compelling shopping experience.
Of course, our online customers can also choose next day or same-day delivery. In addition to our diverse network of third party partners, we expect to have about 450 stores set-up with dedicated labor and vehicles so that our own Best Buy employees can make deliveries to our customers. Almost all Best Buy stores now offer same-day delivery on thousands of products. If the customer places an order by 1:00 p.m. local time, they’ll get it by 9:00 p.m.
Finally, Barry’s key takeaway from the COVID-19 pandemic thus far is that Best Buy was largely prepared to pivot and adapt as the retail environment changed around it. On reflection, he said:
In many ways, our response to the impacts of the pandemic has allowed us to accelerate our strategy. And there remain many aspects of the strategy that require investment to remain relevant with customers in this very competitive omni-channel environment, such as our digital experience, supply chain, and critically important in-store and in-home associates.
In fact, having the foresight to invest in these omni-channel experiences for the past several years was essential in delivering our results during this pandemic. We will continue to invest in those capabilities that focus on the customer experience over the long-term and that are designed to provide choice, speed and now safety.