Best Buy Co. is ready to turn the page. No longer in turnaround mode, the company is gunning toward a future where employees will become problem solvers and their sales pitches will focus on simplifying consumers’ increasingly complex digital lives.
As the company welcomed more than 100 analysts and institutional investors Tuesday to its corporate headquarters in Richfield, Best Buy said the first step will be to accelerate its in-home adviser services, starting with the upcoming holiday season.
The company is moving relatively quickly, after just 18 months of testing. But executives said the program will be key to helping Best Buy grab market share in a fractured and competitive landscape dominated by big players like Amazon as well as scrappy IT startups.
“This is the time to play to win and drive results,” CEO Hubert Joly said in a morning meeting with reporters.
Company executives laid out “thoughtfully ambitious” financial targets for the next three years, expressing confidence that the strategy they started in 2012 has positioned the nation’s largest consumer electronics company for growth.
The retailer aims to hit $43 billion in annual revenue by fiscal 2021, a 9 percent increase from fiscal 2017, the final year of the retrenching effort Best Buy dubbed “Renew Blue.”
Best Buy pledged to deliver annual earnings per share of $4.75 to $5, an 8 to 9 percent increase over last year. Operating income is expected to grow as high as $2 billion, an increase of 17.6 percent.
If Best Buy hits the high end of all the sales and profit targets, the company also would have achieved a slight increase in profit margin, a feat for a company that mainly sells products that quickly decline in profitability.
Even so, the forecast fell short of analysts’ expectations, pulling down Best Buy shares 8 percent on the day and wiping out gains achieved over the summer months. The company’s shares are still up more than 30 percent for the year.
During the question-and-answer session, one analyst worried about a “disconnect over what could go wrong.”
Chief Financial Officer Corie Barry responded that the models could be adjusted but that the executive team feels optimistic about opportunities for growth.
“We feel like this is very realistic,” she said.
Joly declined to discuss the company’s outlook for the upcoming holiday season, a critical sales period in which Best Buy typically earns a third of its annual revenue.
With consumer confidence high, new iPhones on the market and its stores brimming with the latest gadgets from Amazon, Samsung and Google, it could be a sign of how competitive the season will become.
Joly signaled that Best Buy won’t shy away from being bold and aggressive.
“There’s a sense that Amazon is going to kill everybody,” he said, noting that the two companies together have less than a quarter of the U.S. technology market. “More than 75 percent of the market is available.”
As part of its three-year plan, dubbed “Best Buy 2020,” the retail chain will focus on growing sales and implementing efficiencies in its supply chain and elsewhere that will carve a projected $600 million in savings by Jan. 31, 2021, when the fiscal year ends.
Best Buy is betting that its in-home services will open up new avenues for growth, take advantage of its Geek Squad expertise and give the company a chance to rebuild its sometimes less-than-stellar customer service image.
Demographics are in its favor in the years ahead. Millennials, who make up half of its customer base, are coming of age and setting up their own homes.
Meanwhile, older customers are turning to technology to help them stay in their homes and to do everything from seeing who’s at the front door to staying connected to grandchildren.
It’s a crowded market, destined to become more so.
Amazon is rolling out its own in-home services company, though Best Buy has a running start against the company that is both its archrival and prized vendor.
Best Buy now has 300 smart-home advisers working in every major city across the United States. The retailer will amp up for the holidays by adding 1,500 employees with expertise in smart-home products by October.
The “connected home” category has been a strong performer for Best Buy, helping to drive overall sales for the past four quarters.
Executives consider it a “third channel,” as essential to the company’s long-term success as its 1,024 stores and growth in online sales, which now accounts for about 13 percent of overall revenue.
Sales from in-home services are 30 percent higher than in stores and have a higher-than-average margin, Best Buy executives told investors. About 70 percent of transactions have services attached.
The program comes with downsides. House calls are time-consuming and require intensive training to find employees with the right personality and skills. A bad experience may not only be expensive for consumers, but will feel much more personal than buying something online.
David Magee of Sun Trust said in a research note his team is “bullish regarding the company’s potential in service.”
An upbeat Joly stood in front of bright display screens on Tuesday and recalled how far the company had come since he took the helm in August 2012.
Joly had no direct retail experience, but understood the hospitality industry as head of privately held Carlson. He gave a personal welcome to Best Buy founder Richard Schulze, whom Joly won over after a contentious start. He now believes the company has done the same with the consumers.
“We went from, customers don’t like us anymore five years ago, to they now like us,” Joly said. “We’d like them to love us.”