Best Buy Tiny Sales Increase Means It Can’t Dodge Amazon

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Best Buy (NYSE: BBY), the consumer electronics retail giant, posted quarterly sales which surpassed expectations. However, one number showed its uphill battle against Amazon (NASDAQ: AMZN) will remain very difficult. Same store sales for the last quarter were up only 1.6% from the quarter a year earlier. Since Best Buy is largely a bricks and mortar retailer, the number demonstrates it cannot make the sort of advances which will allow it to be a success in the future.

The most recently reported quarter is Best Buy’s Q1 2018 fiscal which ended April 29. Revenue for the period was $8.5 billion, up from $8.4 billion in the same period a year earlier. Net income dropped from $229 million to $188 million. so, Best Buy operations on tiny margins.

Most of the excitement about Best Buy’s numbers was due to its e-commerce revenue:

Domestic online revenue of $1.02 billion increased 22.5% on a comparable basis primarily due to higher conversion rates and increased traffic. As a percentage of total Domestic revenue, online revenue increased 230 basis points to 12.9% versus 10.6% last year.

In contrast to Amazon’s most recent quarter, the Best Buy numbers are encouraging. Amazon’s North American sales were $21 billion in the quarter which ended on March 31, up from $17 billion in the same quarter a year ago. That puts Best Buy’s online growth rate at about the same as Amazon’s, albeit much, much smaller in absolute terms

However, the point is that all of Amazon sales are online, and that frees it from the huge costs of retail stores, store employees, and the inventory management which comes with 1,500 locations in North America.  Best Buy remains tethered to the centuries old system of selling merchandise through stores. An increase of 1.6% same store may look good against other retailers who suffered sharp drops by the same measure. However, it still shows how fragile Best Buy’s primary business model is. Even a small shift down in Best Buy store revenues likely wipes out its online success.