USA: Move by customers towards lower margin products see sales up but earnings down

Best Buy profits down

Best Buy has announced mixed results in its first quarter trading statement, with the world’s largest retailer of consumer electronics and PCs revealing that while sales were up by over 13 per cent, profits had dropped as consumers moved towards lower margin products such as laptops and games consoles.

Speaking in a conference call, Best Buy’s president and chief operating officer Brian Dunn revealed that while profits were down due to a shift in the products its customers were buying, the retail chain was still bucking the trend when consumer confidence, especially in store performance, which was up 3.7 per cent year-on-year.

"We’ve continued to grow our market share and we are confident that our value proposition is working," commented Dunn. "We picked up market share across the board; in TVs, gaming, computing and in mobile phones, while delivering a solid gross profit rate performance in the quarter."

Citing the firm’s strategy of being in every market with consumer electronics, Dunn continued: "We have the complete product line up, outstanding employees and the best service brand in the marketplace. Nobody else can match that today, and we believe this market position puts us at main and main of the connected world.

"We gained another 3.5 [percentage] points of computing market share in the first quarter," added Dunn. "This quarter marked the 22nd consecutive quarter with double-digit comparable store gains in notebooks."

He was keen to point out that it wasn’t just in the sale of computing products that the firm is performing well in. "Our Geek Squad services grew at twice the rate as the rest of the business in the first quarter. Our in-store Geek Squad attachment rates in computing were up.

"We think that is incredibly compelling evidence that customers want more than just a transaction and that our commitment to never leaving our customers hanging has massive implications across every part of our business," he added.

Best Buy’s executive vice president for consumer operating groups, Mike Vitelli acknowledged that while independent retailers are traditionally viewed as the only people who are able to "excel at customer care [because of] committed employees who really know their customers", he believes the firm can be both a national chain – with the benefits it brings – as well as combine the customer focus of an independent.

"I believe that the company can do both; exploit the economies of scale and deliver that hometown customer experience…through inspired employees, we will indeed be the winning company, he added. "And that’s precisely what we are building here at Best Buy every day, one customer and employee at a time, both in the stores and here at the corporate campus.

Best Buy international chief executive Bob Willett added that he sees the European expansion being something that will: "accelerate both companies’ [Carphone Warehouse] growth by capitalising on the European consumers’ evolving appetite for consumer electronics and the connected world."

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