The Big Story
RetailWire Discussion: Best Buy Finds More Inventory on Hand Drives Sales
George Anderson, RetailWire
Best Buy has been on a roll with a same-store sales gain of 7.1 percent in the first quarter following a nine-point comp gain during the fourth quarter. Among the keys to the consumer electronics chain’s success has been its inventory management.
Speaking on Best Buy’s earnings call with analysts in late May, CFO Corie Barry applauded the company’s inventory and demand planning group for “the quality of our inventory,” which she said was reflected in the chain’s net promoter score. “Customers are consistently telling us one of the big drivers of that improved customer experience year-over-year is inventory availability both online and in stores,” said Ms. Barry. “And so, I feel very good about the targeted quality of the inventory and then also the levels in support of the business we’ve been seeing.”
Best Buy’s inventory is up about nine percent on a square foot basis year-over-year. The chain is in the midst of a multiyear effort to transform is supply chain, according to a Wall Street Journal report. While the chain’s management believes the investments being made are critical to Best Buy’s sales success, analysts are watching to see if it delivers the returns investors expect.
Discussion Questions: Do you see demand planning and inventory management as a competitive advantage for Best Buy? Where do you see the biggest opportunities for retailers to improve supply chain and inventory management practices today?
Comments from the RetailWire BrainTrust:
One of the great things about Best Buy is its joined-up inventory system. From a customer’s perspective, this allows stock to be checked across various stores and from the online warehouse. Generally, these checks are completely accurate.
While this system is more flexible, it requires a higher level of inventory in stores — which are now acting as fulfillment centers as well as places of direct purchase. As much as this is an investment, Best Buy seems to have committed to this in a way that other retailers (looking at you Target!) haven’t.
Despite more consumers shopping online, immediacy and the need to “have something now” are still strong drivers of satisfaction. Retailers unable to deliver on these promises find that customers simply defect elsewhere — and in an occasionally-purchased category like electronics, this can be punishing.
Neil Saunders, Managing Director, GlobalData
Demand planning and inventory management are huge competitive advantages for Best Buy. Striking a balance between being lean and carrying an ample amount of inventory is every retailer’s struggle. Best Buy’s approach to inventory has allowed a seamless store vs. online experience that lets customers get what they want when they want it (immediately or conveniently). It’s important for retailers to understand the “why” of product that’s turning over well. Is it demographic driven? Market driven? Promotion driven? Understanding the why allows retailers to make more fact-based, and less gut-based, decisions that can parallel the results Best Buy is currently experiencing.
Byron Kerr, Head of Amazon, Tuft & Needle
Accurate demand planning and inventory management systems have been available to retailers for over 20 years at this point. The problem, as with every system, is execution. Most users don’t believe the data so they override the system and the system does not yield the desired result and it gets scrapped.
It sounds to me like Best Buy is finally paying attention to the data and it is yielding a positive result. Having the correct inventory in the stores is essential for growing sales. There are a lot of retailers who have a ton of inventory on display, but no one is buying it because it is the wrong inventory for their consumers.
Can this be a strength? Clearly, it can. It will also help in determining the right sized store.
Phil Masiello, Founder and CEO, Hound Dog Digital Agency
Like with labor, I think the pendulum on inventory in stores got pushed way too far to “cut, cut, cut” and needs to come back a little. It’s not just about having the right products in the right stores at the right time. The idea of “fixture inventory” or that you need a base level of inventory, no matter what it is, to make the store look “stocked” is not baseless. If people see an empty store, they think “There’s nothing here for me” and won’t shop. So even if you had a perfect match between what you had in store and what you expected to sell before the next replenishment truck, it really would not be enough inventory to get consumers confident enough to shop.
So, I suppose we should give kudos to Best Buy for recognizing this, though I would say it’s more like “rediscovering a long-established retail store principle.”
Nikki Baird, VP of Retail Innovation, Aptos
Demand planning and inventory management are mission critical for EVERY retailer. It is not just raising inventory levels, but fine-tuning inventory by market, by store and even at the shelf level in some cases. To be successful in inventory optimization today requires extensive data, analytics and rapid replenishment.
Chris Petersen, PhD., President, Integrated Marketing Solutions
It’s good to see that Best Buy understands how product and having product on hand is key to retail sales. This is a refreshing view given pundits with theories as extreme as the idea that stores should be mini-amusement parks.
I’m reminded of much of W. Edwards Deming’s writing about how metric-based management can lead to the perfectly managed company that failed.
It seems we are in a phase where intense computerization of, well, everything allows management to obsess over a tiny detail while losing track of the big picture. More retailers need to follow Best Buy’s example of ditching the micro-management in order to look at the big picture.
Doug Garnett, President, Protonik
Best Buy has done many things right since the dawn of online competition, this being basic and smart. Demand planning goes beyond simply minimizing out-of-stocks, but falls short of the need to carry everything between online and in-store. BB’s products experts are a real advantage. To offer inventory they can sell, (up-sell, etc.) after advising should work. After all, the only thing that beats next day delivery is buying in the store today.
Dan Raftery, President, Raftery Resource Network Inc.
The inventory management system is great but part of that advantage is that the people on the floor can check inventory status on the floor. A real-time system that all employees can access provides a clear advantage for consumers to help their decision making.
Camille P. Schuster, PhD., President, Global Collaborations, Inc.
Headlines of the Week
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Apparel & Footwear
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Athletic & Sporting Goods
Dick’s Sporting Goods Inc’s shares jumped 24 percent, after the retailer of outdoor products and guns reported better-than-expected first-quarter results and raised its yearly profit target. Dick’s reported earnings of 59 cents per share in the three months ended May 5, easily topping analysts’ average estimate of 45 cents, according to Thomson Reuters I/B/E/S. The Pittsburgh-based chain said it focused on selling off older inventory during the quarter and ran fewer promotions, which helped boost earnings.
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Cosmetics & Pharmacy
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Personalized medicine platform provider Genomind has entered into a partnership with Albertsons to allow pharmacy patients at select Albertsons, Jewel-Osco and Acme supermarkets who are dealing with mental health issues to voluntarily receive free education about how genetic testing may be able to help them get better faster.
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Discounters & Department Stores
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Grocery & Restaurants
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Home & Road
One Kings Lane plans to open a New York City flagship in a 200-year-old house in SoHo this fall. The flagship, which follows the e-commerce company’s successful brick-and-mortar experiment in Southampton, N.Y., last year, will be located at the landmarked 143 Spring Street. “Our first shop, which opened in Southampton last summer, set the tone for this next opening and future stores to come. It was extremely important to us to find the right space — one that has deep roots in the local community and could provide the perfect backdrop for the storytelling we do around our product,” said President Debbie Propst. “As a brand that’s all about the mix, finding a space that includes some of the oldest and newest construction in SoHo is a perfect fit for us.”
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Jewelry & Luxury
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It’s a pivotal moment for jewelry trade shows, with big changes afoot in Vegas.
The JCK Las Vegas Show, owned by Reed Exhibitions, is poised to return to the Sands next year, where it launched 26 years ago, just as Emerald Expositions opens a new jewelry trade show nearby. Around the world, big jewelry trade shows are downsizing, smaller ones are opening, and vendors and retailers are dropping out and showing on their own.
Office & Leisure
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Technology & Internet
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Finance & Economy
Consumers are more confident about the labor market than any time in the past 17 years, according to the latest report from the Conference Board. The research firm revealed 42.4 percent of consumers surveyed in May said jobs are “plentiful,” which is the highest level since March 2001. The rising sentiment on jobs without similar wage gains is perplexing economists and executives. Earlier this month the unemployment rate in April hit an 18-year low, while wage growth went roughly sideways at a 2.6 percent annualized gain.
The current outlook for growth is bright, but specific risks could endanger long-awaited progress, according to a report released by the Organization for Economic Cooperation and Development (OECD). But a brewing combination of rising oil prices, trade tensions and financial market vulnerabilities could coalesce amid an environment of monetary tightening, spelling potential disaster.