May 21, 2013, 9:21 AM

Best Buy reports strong online growth in the first quarter

The chain also aims to ship web orders from stores.

Don Davis

Editor in Chief

Lead Photo

Renew Blue, meet the Internet.

Renew Blue is the name Best Buy Co. Inc. gave to its turnaround program announced last fall, and today company executives described a series of online initiatives designed to boost sales on Best Buy.com as part of the Renew Blue effort. They include shipping web orders from stores when online distribution centers are out of stock, increasing paid search and affiliate marketing, boosting Best Buy’s place in natural search engine rankings, improved site search and product recommendations, and encouraging web shoppers to add additional items when they pick up online orders in Best Buy stores.

“We’ve historically underinvested in the online channel,” president and CEO Hubert Joly, told analysts in reporting on the retailer’s fiscal first quarter earnings, according to a transcript provided by SeekingAlpha. “So, increasing our online investments and implementing these upgrades will significantly improve our online effectiveness and, in some cases like in the area of onsite search, take us to industry-leading levels.”

Joly made the remarks after Best Buy reported strong online growth in the first quarter of its fiscal year, which ended May 4, while store sales were flat.

The consumer electronics retail chain said web sales totaled $498 million in the 13-week first quarter of fiscal 2014, a 7.1% increase over the 14-week first quarter of fiscal 2013. Excluding the 14th week of last year’s quarter, the company put comparable online sales growth at 16.3%. It was the first time the company reported comparable online sales growth.

Besides the first quarter being one week shorter than last year, Best Buy noted that sales were lower than Q1 last year because football’s Super Bowl game—which prompts many consumers to buy flat-screen TVs—shifted into the last quarter of fiscal 2013, after boosting sales in the first quarter of fiscal 2013.

Domestic same-store sales were down 1.1%; excluding the extra week in last year’s quarter same-store sales were flat. Best Buy now includes online sales in the same-store calculation, which means, given the growth in web sales, that bricks-and-mortar stores open at least a year sold less in Q1 than the same period a year earlier, even after discounting the extra week.

In reporting on progress in the Renew Blue initiative—which includes steps to increase revenue, cut costs and optimize use of real estate—Joly began today with the web.

He said that in the current quarter Best Buy is making it a top priority to move up in natural search rankings, a process often called SEO for search engine optimization. That includes redesigning areas of the web site including navigation, improving the user experience on mobile devices and adding more unique content.

“These SEO optimization initiatives are top priority because 80% of all customers who are planning to buy $100-plus hard-line product[s] in a retail store are researching the product online before going to the store and using the first page of search results to decide where they’re going to buy it,” Joly said. “That means that showrooming is not starting in our retail store, it is starting online.”

He also said Best Buy plans in the second quarter to replace its 10-year-old site search engine with a new one that will provide more relevant search results. The retailer also plans to create “a consistent customer experience across mobile, tablet, and PC devices including common navigation and product information,” Joly said.  Another initiative will make it easier for a customer to add to his shopping cart services from Geek Squad, such as setting up a stereo system or repairing a computer.

Later in the year, Joly said, the BestBuy.com will offer easier sign-on for members of the retailer’s Rewards Zone loyalty program, make it more convenient for consumers picking up online orders in stores to add items, and add additional retailers to sell on the BestBuy.com marketplace.

Turning to the second Renew Blue priority—improving the multichannel customer experience—Joly said that Best Buy has improved its Net Promoter Score—a measure of customer satisfaction—by 300 basis points since starting to measure NPS in November.

He also touched on two other cross-channel initiatives, Best Buy’s price-match program and a new initiative to ship some web orders from stores.

Best Buy introduced last fall a policy of matching prices at major online and store rivals, and extended that in March with a new low price guarantee policy that offers to meet the pre-tax price of a local store rival or 19 major e-commerce sites. Among those sites is Amazon.com, No. 1 in the Internet Retailer Top 500 Guide, and Joly noted that Best Buy, No. 10 in the Top 500, is benefiting from Amazon collecting sales tax from consumers in more states as the leading e-retailer builds new distribution centers. He says Amazon will be collecting sales tax in states covering 50% of the U.S. population by early next year. “And in states that are already collecting, we're seeing an incremental benefit in our online and retail store sales,” Joly said.

The second initiative calls for stores to fulfill web orders when the online inventory is exhausted. Joly said BestBuy.com loses 2-4% of its orders because the site shows the item out of stock at the e-commerce distribution centers, though about 80% of the time the product is available in a Best Buy store. In the second quarter, Joly said, Best Buy will begin testing shipping web orders from 50 stores. If successful, the program will be extended to more stores to meet online demand, he added. Best Buy is emulating other retail chains that have begun shipping from stores, including Wal-Mart Stores Inc., No. 4 in the Top 500.

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