Despite short-term headwinds, this Retail Apocalypse winner’s high-touch customer service and expansive store network position it for continued success. Best Buy (BBY: $114/share) is this week’s Long Idea.
We originally made Best Buy a Long Idea in April 2018, and, since then, the stock is up 54% vs. a 72% gain for the S&P 500. Despite its underperformance, BBY still presents quality risk/reward given the company’s:
- growing ecommerce market share
- efficient omni-channel strategy
- superior profitability to peers
- position for continued growth with rise of work from home
- current valuation implies profits will never exceed pre-2020 levels
Ecommerce Drove Market Share Gains
Per Figure 1, Best Buy’s share of U.S. ecommerce sales doubled from 1.2% in 2018 to 2.5% in 2020. While the company’s share of U.S. ecommerce shares has fallen to 2.1% over the TTM, it is still much higher than its pre-pandemic levels. The company also saw gains in the overall U.S. consumer electronics, where its market share expanded from 9.6% in 2019 to 9.8% in 2020.
Figure 1: Best Buy’s Share of U.S. Ecommerce Sales: 2018 – TTM
Sources: New Constructs, LLC, company filings, and FRED.
Stores Support Omnichannel Growth
Best Buy has not only survived the Retail Apocalypse, but it has emerged with the most developed omnichannel experience in the market as it reaches customers with its physical stores, online platform, and in-home service. Even Amazon utilizes Best Buy’s omnichannel capabilities to distribute its own products, such as TVs and tablets in Best Buy stores.
The company will continue to leverage its 983 stores across the U.S. to grow its omnichannel business. The company’s stores’ staff are cross-trained to fulfil online orders, provide in-store customer service, and virtual customer support.
More than just facilitating physical shopping and product demonstrations, stores also serve as service centers for the company’s Geek Squad, fulfillment centers for online orders, and customer pick-up/return locations for online orders. No other retailer can match the depth of services offered by Best Buy’s stores and ecommerce operations.
This article originally published on October 20, 2021.
Disclosure: David Trainer, Kyle Guske II, Alex Sword, and Matt Shuler receive no compensation to write about any specific stock, style, or theme.
 Best Buy’s last fiscal year ended January 30, 2021, which we refer to throughout the report as 2020.
 U.S. NOPAT is estimated as company-wide NOPAT margin x U.S. revenue
 Only Core Earnings enable investors to overcome the inaccuracies, omissions and biases in legacy fundamental data and research, as proven in Core Earnings: New Data & Evidence, written by professors at Harvard Business School (HBS) & MIT Sloan and published in The Journal of Financial Economics.
Disclosure: New Constructs
Disclosure: David Trainer, Kyle Guske II, Sam McBride, Matt Shuler, Alex Sword, and Andrew Gallagher receive no compensation to write about any specific stock, style, or theme.
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