Best Buy is back from the dead, Time proclaims

Categories: Best Buy
best buy zombie rect.jpg
Zombified last fall, Best Buy is now back in the realm of the living, Time writes.
Last October, a Bloomberg Businessweek cover feature characterized Best Buy as a "Big Box Zombie" and said the company "is in trouble."

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What a difference nine months can make!

A Time article published earlier today details "Best Buy's Unlikely Return From the Dead," a resurrection that has occurred under the watch of CEO Hubert Joly, who took over last year in the wake of Brian Dunn's disastrous, scandal-plagued tenure.

Time begins by pointing out that despite still-falling revenues and earnings, Best Buy's stock ranks as "one of the best performing" on the S&P 500 so far this year (click to enlarge):

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So what's the deal? This excerpt from the piece explains:
[I]ncreasingly, analysts are buying into Joly's vision for the company's future. In a recent note to investors, Credit Suisse retail analyst Gary Balter raised his target price of Best Buy stock and wrote, "We believe Best Buy offers more upside in the [retail] space than any other company we cover."

Balter maintains that Best Buy is turning it's massive store base -- until very recently viewed as a liability -- into one of its biggest strengths. The first step is to move away from the "bigger is always better" philosophy that has long dominated the retail industry. Best Buy is closing many of its locations and moving into smaller spaces with a more focused selection of products.

Joly is also leveraging his store space through partnerships with Samsung and Microsoft to create "stores within a store" across the country. Under these agreements, Samsung and Microsoft rent out space within a Best Buy to prominently feature their most popular products. The strategy should improve profitability not just through rent receipts, but by driving sales of products elsewhere in the store.

Best Buy is also beginning to leverage its more-than 1,000 locations by increasingly shipping merchandise from stores to online customers. This strategy can improve chances that an online customer will find an item in stock, and allow stores to sell returned items to online customers, two outcomes that should help the firm improve its profit margins.

Finally, Best Buy is investing in improvements to its web business more broadly, with the hope of making its web site more user-friendly and improving search functionality. Best Buy's website receives more than a billion vistors [sic] per year, but only 1.3% of those end up purchasing a product. Balter explains that if these investments bring that conversion rate up just one percentage point, it would mean roughly $250 million more per year in operating income.

So an expert thinks Best Buy has more upside than any other retail company? That's a shocking claim coming just after a year after company was widely proclaimed to be a relic of a bygone big-box age and left for dead.

However, the end of the Time piece does strike a cautious note.

"[I]t's worth noting that Best Buy hasn't actually turned this promise into performance yet," Christopher Matthews writes. "In other words, Best Buy is not out of the woods yet."

Not out of the woods, but out of the grave, apparently.

-- Follow Aaron Rupar on Twitter at @atrupar. Got a tip? Drop him a line at arupar@citypages.com.


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